Housing Buyers Market - - - at least for a while

HOUSING BUYERS MARKET - - at least for a while

How does one really know when to buy or sell real estate? There are many factors involved, and without a crystal ball, you can't be 100% certain! Every day, the media publicizes a lot of confusing information, and it is very difficult for the average person to know what it really means.

We all know that during all of 2009 and most of 2008, in most areas of the country, housing prices have fallen, in most areas by more than 20% since the height of the market. However, many people tend to forget that the real estate market has experienced these down cycles before, albeit usually not as severely. What is unique about this "cycle"is that the dramatic drop in prices has been accompanied by record low mortgage rates! While one would logically think that would create a buyers market, the combination of high joblessness and under-employment, combined with the lower stock prices, and extraordinarily tight credit market (making mortgage loans much more difficult to get), has caused buyers market pricing conditions but neutral market market conditions. The number of buyers has been inconsistent - especially the number of qualified buyers. Buyers realize that they do not have to act with the urgency that they did when the market was higher because there are very few bidding wars out there. It took sellers quite a while to realize, or at least accept the fact that they were not going to be able to sell their houses at the pricing when the market peaked, and thus many homes either did not sell, or sold only after numerous price adjustment (PC way of saying "price drops"), and the number of days a listed home remained on the market increased dramatically.

Qualified buyers - - those with good credit (credit scores of 700+), at least 20% to put down, and sufficient demonstrable income - - got some "great deals." Lending institutions received billions to "bail" them out, but very little of this money went to loosening credit. Most of that money simply made the banks more profitable. The typical American's credit score was "arbitrarily" lowered because of how it is calculated, and the impact that most credit card companies lower the vast majority of individuals credit limits. This caused the credit ratios to change, and thus credit scores to be lowered. This, in turn, tightened the mortgage market even further, because individuals with seemingly good credit, saw their credit scores lowered because of bank policy that had nothing to do with them specifically. The continuous of this "circle of circumstances" was that this policy created even fewer qualified buyers, thus causing additional havoc in the housing market.

The fear of the recession and the joblessness rate created many potential buyers to shy away from house hunting. The Federal first-time housing credit, combined with the extension and enhancement of the program to cover many that have held homes for more than five years, has helped bring out some additional buyers. Since this program is, however an expiring one, scheduled to expire in mid-2010 (must be in contract by Aprkil 30 and close by June 30), there is an added incentive to buy a home. The indication that the recession has or is close to coming to an end, has created somewhat of an increase in consumer confidence, as has the general feeling that the joblessness rate has or neared its top, and should come down during 2010, should increase home buyin g in the next few months. The government has also indicated that it will exert pressure on lending institutions to make consumer loans, including mortgages, more readily available, which should also be a plus.

Therefore, with record low mortgage rates, low home prices, and a slight easing of the mortgage loan availability, combined with the tax incentive, the next few months should provide a limited window for qualified home buyers to take advantage of a great circumstance. Obviously, as the economy increases, and mortgage rates rise, and markets stabilize, the cost of home ownership will increase. A serious home buyer should take advantage of these conditions, before we return to less favorable buying conditions. Remember that the real estate market is cyclical, and there may not be a better time to buy a house for many years than there is today!

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HOW ECONOMIC DATA & THE HYPE CONFUSES!

HOW ECONOMIC DATA & THE HYPE CONFUSE

I am sure that many of you have heard that gold was a great investment, and that investors like gold as a hedge against bad economic news. Since gold is now experiencing its best year since its last peak in January 1980, it is a good time to review the reality. On December 3rd, gold reached a record high, exceeding $1,225 an ounce. A gold investor who purchased gold during the last peak at $850 an ounce, has seen a return of approximately 44 percent. To put that into perspective, if one reinvested dividends, the Standard & Poor 500 stock index multiplied approximately 22 times. Even Treasury vehicles rose more than ten times, and interest-bearing bank accounts (not including Certificate of Deposits) almost doubled! When one factors in inflation, gold investors are still VERY far away from breaking even on their investment! Am analysis of gold investing leads one ro realize that gold is NOT a good long-term investor, and that the security of owning something tangible for "peace of mind" can be very costly.
Similarly, the originally cost of the TARP bail-out has been recalculated because many banks have repaid the loans much earlier than forecast. The cost of the TARP bailout has therefore been recalculated downward by approximately $200 billion (over 10years). The Government has actually made money on many of the TARP loans repaid. Does anyone think they know why these companies are repaying early? Could it have anything to do with not wanting to have the government have the "leverage" over them?
Several months, the politicians and the media were celebrating what they referred to as landmark legislation regulating the credit card companies. However, the law that was passed would not take place for nine months after enacted. So what have the banks done? They've configure themselves to make significant moves ahead of the deadline, so they are in the most advantageous position possible. Many of the banks have raised their interest rates; many others have arbitrarily and across the board lowered credit limits. And to make the system even more ludicrous, the way credit scores are calculated, the banks lowering of credit limits causes many people's credit scores (FICO, etc.) to go down!
So, what did the banks do with the monies they received to bail them out? Wasn't the public led to believe that it was necessary to bail out the banks, so that credit would be available for purchases, mortgages, etc? Well, what most of the banks did was use the funds to make their own bottom line look better, while tightening credit more and more!
President Obama called a huge jobs summit, which appeared to accomplish less than a typical jobs fair! The President then made a speech that addressing jobs was a priority (then where does it go on the priority list with his other stated priorities?), but that it needed to be a combined government- private sector approach, because the government has to be mindful of the growing US deficit and its inherent problems, and that the government isn 't in a position to spend all the needed funds. Yet, if this is a priority, it must be treated as such! Since Mr. Obama took office, the U.S. deficit has grown from a ridiculously high $400 Billion, which he inherited, to over $1.4 Trillion today. We have been told that the Afghanistan surge will cost $30 billion (but that number is only the additional funds we are told will be spend over the next 18 months). Will anyone be surprised to see that number grow exponentially! On the Sunday morning shows, Secretary of Defense Gates and Secretary of State Clinton kept saying that basically there would be a slight first pull-out of some troops, beginning in July 2011! Haven't we heard before that there was "light at the end of the tunnel," as LBJ used to say?
Beware the jobless/ unemployment figures! I am always wary when the government produces "better than expected" figures, right before the President's big speech tomorrow night on jobs. Factoring in those that are counted, those that are working part-time instead of full-time, those that have given up looking, and those who have, out of desperation taken significantly lower paying positions, the joblessness and employment/ unemployment issues should the U.S.' number 1 priority! The U.S. must seriously address this issue for our economy to fully recover.
Are things a little better? Yes, I don't think we are getting worse, and I do believe there will be improvement. It is rumored that the Federal Reserve is already discussing when (not if) they will begin to raise interest rates. So, the one thing that any consumer who is in a position to - - who can afford to - - should do, is seriously consider purchasing real estate now! Mortgage rates are historically low, home prices are low, and qualified individuals with reasonable credit who can put 20% down, can get a mortgage on a properly priced home! Those considering it, but waiting are most likely going to be very disappointed when sometime next year, mortgage rates go up, housing prices begin to rise, and the Housing Credit expires! This may be the best real estate buying opportunity in some time!
Nobody can foresee the future, and nobody can pinpoint the precise low point of a market. Those than panicked and sold off stocks at their low, and did not step in when the Dow was about 8400 because they were waiting for the low, missed an opportunity to take some advantage. The ideal stock-buying strategy over time has always been dollar-cost averaging. That strategy has worked in up markets, down markets, and do-nothing stock markets. It takes dicipline, but averages out purchase prices so that the market swings are not catastrophes!
Patients, being wary of the hype, and understanding that all markets are cyclical is the best long-term strategy. Nobody ever makes a profit unless they sell, so one should be much more interested in a long-term, successful approach.

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ECONOMIC NEWS,JOBS&HEALTH-What it all means?

Over the weekend, and this morning, there was a lot of news and reports bantered about regarding the US and World economies, joblessness predictions, and the proposed Health Plan. As some anticipated, house sales in October were up 10.1% over last year. Any increase is always good news, but since last year's number were so dismal, it's not as good news as it might seem. But, at least it's somewhat encouraging! Several sources have predicted that the worst of the joblessness numbers will be over by the end of the first quarter of 2010, but not before the rate rises somewhat to approximately 10.5%. These same sources are predicting a slight decrease in joblessness throughout the balance of 2010, and the consensus prediction for the year-end 2010 is approximately 9.6%. It is probably an indication of where we are at now that many are cheering a 9.6% unemployment rate as good news! The consensus among economists is that we are nearing the end of the recession, and the recession will end by the second or third quarter of 2010, and would then gradually improve based on other economic news and conditions.
The Senate, voting along straight party lines, voted 60-39 (Who was that 1 Republican who didn't vote?) to permit the health plan discussion to come to the Senate floor. However, at least 4 Democrats (who have been labeled by the media as Moderates) have stated that they voted to let the bill be discussed, but are opposed to the "Public Option." The media is also reporting that the liberal bloc of the Democratic Party has said that if the "Public Option" is removed, they believe the plan will be too watered- down, and they would then have to oppose the bill.
It is important to understand that because of certain peculiarities in the Senate's rules, that it takes 60 votes to pass this type of legislation, not just a majority. Since, to date, the Republicans have opposed the bill unanimously, it would take ALL Democrats and the 2 Independents voting Yea to advance the legislation. Further complicating the issue, is the politics involved since one-third of the Senate, and all of the House, is up for election in November 2010. That is the reason that the pro-plan advocates have been trying to get this accomplished as soon as possible, because politics will become an even greater factor the closer to the mid-term elections we get!
Proponents of this health legislation state that it is necessary to cover as many Americans as possible, control medical costs, and make the health care industry more responsible and fair. Opponents complain that the legislation proposed is excessively expensive, legislates medical care policy, and does not rein in the true causes of escalating medical costs. Opponents state that is essential to cap non-medical aspects of medical liability cases, permit insurance companies to be sold nationally to create "economies of scale," bring down the costs of drugs, reduce/ eliminate waste including excessive tests done(because doctors feel they need to protect themselves in a litiganous society).
The reality is that there are truths and fallacies on both sides of the political aisle, and unless our politicians magically begin to act as statesman, we will not get a good plan that works and accomplishes many needed areas. It is essential to remember that the costs and numbers that are put forward and publicized must be taken with a "grain of salt," because historically costs are higher and revenues are lower than the advance projections we are given.
In a previous blog, I discussed what I felt were the most important factors that needed to be discussed. Nobody has all the answers nor all the solutions, but I hope that whatever decision is made is responsible, effective and considers all the ramifications of their decisions. It is hard to believe that a 2,000 page piece of legislation has not been loaded with "pork" to get it passed! The challenge, as usual, is that most politicians consider their primary "job" running for office and getting elected, rather than being a statesman for the public good.

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Why is economic news is so confusing to understand?

No wonder most people don't understand the economy. Often what might seem good on one hand, has bad side effects on the other. For example, the stock market rises- one would think that was good! But that was mostly due to the rising price of oil- bad news. But the price of oil is rising because the "experts" believe the economy is improving and thus more oil will be needed in production- good news! But that rise in oil prices causes the cost of living to increase- bad news. But that helps the Gross Domestic Product (GDP)- good news! But that then causes inflation- bad news. But that inflation means the economy is improving- good news! But then the Fed becomes concerned about inflation and raises interest rates- bad news! Which causes the value of the dollar to improve- good news! But that hurts exports because now American products cost more overseas- bad news! But that means foreign products cost less in the US- good news! But that hurts American companies competetiveness- bad news!
And so on, etc. So you see why economic news often seems co confusing. Because it is- what is good for one consumer, might be bad for another- what is good for one company, bad for another- what might be good for one sector of economy- bad for others.
The stock market is often the most confusing. On days when there is "bad news," the market often goes up, while on some "good news" days, the market sometimes goes down! While the Dow, or the S&P, etc., might go up, it does NOT mean that the stock(s) you own, will follow suit.
Too often, for the sake of a sound-byte, the media tries to over-simplify economic news. Yet the economy is by definition quite complex.
The one issue there should be some agreement on is that high unemployment is not good. Yet even in that case, the "experts" can't agree upon, nor act upon a viable solution.
The best way to think about the economy is this-- the difference between a recession and a depression is that it's a recession when it happens to someone else-- it's a depression when it happens to you!
It is my belief that a healthy economy requires certain factors to be in place - - low joblessness; high consumer confidence; a strong manufacturing sector; and reduced government deficits. That is what we must demand!

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DOLLAR DOWN,METALS&OIL UP-WHAT DOES IT MEAN?

As of this morning, the US dollar fell to its lowest level since August 2008, while metals (led by gold and copper) keep moving up in price, and the price of crude oil has nudged upward once again. What is the meaning?
If you listen or read what the "professionals" say, you will probably be more confused than ever. The same company earnings report, for example, can be interpreted or "spun" in many ways. So here's my take. The weakness of the dollar indicates that the world community is becoming increasingly alarmed at the every growing US deficit, and seeing no end in sight. The real concern here is that commodities will stop using the US dollar as the benchmark for pricing, but will switch to another system. Since the US imports more than it exports, it means that consumers will find imported items more and more expensive. While this may benefit a few corporations, overall it is bad for both consumers and consumer confidence.
A bigger concern for most Americans is the creeping upward price of crude oil. Increased energy prices has the potential to cause a new round of inflation to be piled on top of our existing recession. The increasing US deficit exacerbates all other efforts to control or maintain a healthy economy.
The joblessness issue is the issue that should be "PRIORITY #1" because to improve the economy, the American public must have their confidence restored. Every effort must be made to retrain out of work individuals to get good employment, give incentives to businesses to hire, and re-create a "comfort" level. Old thinking, cliches, throwing good money after bad, bailout after bailout of greedy companies does not help with the joblessness crisis.And it is a crisis when the official unemployment rate is about 9.8%, and the estimated true joblessness rate is about 18-20%.
Why are metals going and commodities going up in price? Simple- to offset weakening dollar, concerns about US economy, and fear of upcoming inflation. We have to urge our elected officials to stop giving speeches, and start taking some real, well thought-out action!
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