Week of November 3 - 9

What we are enduring is no longer a national economic crisis. We are full swing in a global financial crisis that has affected at least 11 countries around the world. Brazil, China, Germany, Iceland, India, Japan, Russia, Saudi Arabia, South Africa and the United Kingdom are now all reporting economic declines and many experts agree that their woes are a direct result of the U.S. housing decline.

World leaders gathered in Washington on Friday to talk about what is needed to get the global economy back on track. Leaders from the Group of 20, which includes the United States, members of the European Union, China, Saudi Arabia and Brazil, agreed to the summit late last month at the height of the global financial crisis.

Our government continues to struggle with finding a solid, coherent plan to give necessary aid to the troubled credit and housing sectors. The administration is still working on the best way to deploy the remaining money in the $700 billion financial rescue plan passed last month. Treasury Secretary Henry Paulson said Wednesday that the government will no longer buy troubled mortgage backed securities—the original intent of the legislation—and will mainly focus on injecting money into the financial sector.

The stock market continues its frenetically sharp swings. This week brought further poor unemployment numbers, and then disappointing retail sales which were off, the resulting fear causing sell-offs, which ultimately attracted buyers taking advantage of lower stock prices. Sounds familiar, right? Each week for more than a month and a half, it’s been about the same story on Wall Street.

Keep in mind that California compares to the rest of the country, noting that while our hardest hit areas decreased further and faster than the country as a whole, these areas are also rebounding at a much faster rate than the rest of the country. It is an important fact that consumers should be aware of.

There is an importance for local forecasting noting that it really is a mistake to paint the California real estate market with a broad brush. Markets like the Central Valley were hit much harder than the Bay Area yet are often lumped in to make sensational headlines for real estate stories. Sales, however, are up and two things we know about this sharp rise in Bay Area sales is that they are largely fueled by REO’s, and that they are dramatically pushing median price down. The positive fact is that these homes are indeed selling, and at a fairly rapid rate. As we weed through the bank owned listings, inventory will begin to decline, which will eventually cause the price point to increase.

Breaking News: The Fed Cuts Rates by Three Quarters of a Percent

The Federal Reserve slashed two key interest rates by three-quarters of a percentage point Tuesday following an unscheduled meeting, citing continued concerns about a weakening economy and turmoil in the financial markets.
So what does this mean for consumers?
The Federal Reserve lowered its federal funds rate to 3.5 percent from 4.25 percent, which impacts how much consumers pay on credit card debt, home equity lines of credit and auto loans,. This marked the biggest one-day rate move by the central bank since it cut its discount rate by a full percentage point in December 1991, a period when the country was struggling to get out of a recession.
The rate cut is designed to stimulate the economy, which includes the housing market, by:
Helping more individuals qualify for loans and increasing an individual’s purchasing power; and
Positively impacting home equity lines of credit.
How will the rate cut affect consumers?
The cut will affect consumers in a variety of ways:
Those who have home equity lines of credit that are tied to prime or short term Adjustable Rate Mortgages (ARM) could see an immediate reduction in their interest rate.
Those consumers who have adjustable rate mortgages that are tied to key indexes like the One Year Treasury Bill, 12-month Treasury Average and LIBOR Index may receive the benefit of this reduction as the indexes start to move lower in conjunction with lower rates.
What the lending experts are saying.
Robert Reid, the President and CEO for Mortgage Banker Princeton Capital released the following statement on Tuesday following the cut, "The rate cut bodes well for both home buyers and homeowners with adjustable rate mortgages. The cut also puts further downward pressure on mortgage rates. Rates have been moving down the last several months with the previous Federal Reserve cuts, so today’s action will continue this movement which increases home affordability. The conforming rates were at a two-year low prior to the cut and will likely decrease further which will help push jumbo rates down further as well. Lower rates increase affordability which should motivate more homebuyers to get into the market sooner rather than later."
Based on interest rates and the current state of the economy, is now a good time to buy?
We believe this may be the time to buy a home, especially if owning a home is going to be a long-term commitment. Interest rates remain at attractive lows; this increases an individual’s purchasing power and makes the mortgage payment more manageable. In some areas, prices have softened as inventory has grown. All this is leading up to a very strong market for buyers.
If you have been thinking about buying or selling, now may be your best opportunity in more than a decade to do so. I would welcome the opportunity to counsel you on the opportunities available in today’s market and help you take advantage of them before it is too late.