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So Long 2009! (Note – I originally sent this out as part of my weekly e-mail series – Mortgage Market Week in Review – but the response was so positive that I thought I’d repost it here.) |
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1. Without a doubt, the Read more |
Tag: Mortgage Market Week in Review (page 1 of 1)
Well it’s hard to believe, but another week has flown by. Rather than spending a Saturday working on mortgage stuff and writing about mortgage stuff, I spent the day taking my 8 year old to a birthday party, cleaning out the garage and getting the pool ready for the season. It was a good day for that.
But enough about me, it’s time to take a look at what’s happened in the financial markets this week. Let’s look at a couple of key economic reports/financial news items:
Foreclosures – for the first three months of this year, many of the big banks and Fannie and Freddie had foreclosure moratoriums on. What does that mean? Basically that they stopped foreclosing on homes. But, many of the big banks lifted the moratorium shortly after the 105% refi plan was announced and Fannie and Freddie lifted their ban on March 30. The reports that I’ve read (and written about on Straight Talk About Mortgages ) show that foreclosures are spiking way up again. What does that mean? A couple of things: 1) Our inventory problems aren’t going to go away any time soon. 2) Bank earnings problems aren’t going to go away any time soon.
New Construction –Housing starts and permits both came in at pretty close to historical lows. But frankly that’s not a horrible thing from a long term standpoint. Let me explain: We have too much inventory. In virtually all price ranges and virtually all markets, there are too many houses for sale. So we don’t need builders building more houses right now because it adds to the inventory problems. Also, we have a situation where in most markets, the number of foreclosures that are on the market is raising the discrepancy between the cost of existing homes and the cost of building a new home. According to many of the developers who I’ve talked to, it’s almost impossible, in many markets, to sell a brand new home at a profit because of the pricing pressures. So, until we can work through the inventory and also address the jobs issues Read more
The Week We Woke Up
I’m going to deviate from the normal format this week, because I believe that this week has deviated from the normal that we’ve been experiencing lately. I’m calling it the Week We Woke Up.
What did we wake up to? A couple of things:
- The fact that the debate on whether we’re going to have to nationalize some of the banks/financial institutions is pretty much a debate over semantics. The announcement that the government now owns 36% of Citibank and that we had to spend some additional billions (how many has yet to be determined) to save AIG for the third time effectively said that we are now in a situation where the government does own some of the banking industry and the debate should now be about the how and not the whether or not. This mess sent shock waves through the financial markets and virtually every bank saw their stock prices get “adjusted” accordingly. There was a time this week that Citibank was trading for less than the cost of a Jr. Bacon Cheeseburger at Wendys.
- The reality of GM’s scenario became a lot clearer and not in a way that was going to make the economy any healthier. There’s a phrase in business accounting called, “A Going Concern.” What does that mean? Essentially it means that a business is generating enough income and has enough cash to continue in business. Well, GM not only had some bad news in terms of sales, but they admitted that their auditors don’t believe that they can remain in business. That’s a pretty strong indication that GM’s condition is a lot worse than what we thought a couple of months ago. What does the prospect of a GM bankruptcy mean? Best case scenario – renegotiated contracts with the UAW and bond holders, substantial job losses and dealership closures. Worst case scenario – total liquidation of GM and absolutely staggering job losses that will make Read more
I want to apologize for the delay in getting this out until Saturday. Due to some technical difficulties and some new things I’m going to be implementing, Friday was spent working on computer issues. Yeah, I know, a fun way to spend a Friday…..
So, here we are at the end of the week and what’s happened? Well, a couple of things did manage to happen. We’ll talk about the Fed, what they did, why it matters and why it doesn’t. We’ll talk about earnings (or the lack of them), consumer spending (or the lack of it), inflation (or the lack of it), bailout backlash, and falling oil prices as well. So, here goes:
The Fed, as you know by now, lowered the Fed Funds rate by .5% to 1.0%. A couple of statistics about that number:
1. As you know, that isn’t directly linked to mortgage rates, so mortgage rates are not going to drop by .5% because of that move.
2. That is equal to the lowest rate the Fed has had rates this century (from June of 2003 to June of 2004). If you’ve read anything about what’s happening in the financial world, you’ll know that the former Fed Chairman Greenspan has taken a lot of heat for keeping interest rates too low for too long. Hmmm, and now we’re back to that same level.
3. The rate they lowered to is 1.0%. That means they have very little “ammo” left in their pouch if things deteriorate further.
4. Japan, in the 1990’s, had an interest rate of 0%. That’s right, banks etc. could borrow money from the Central Bank of Japan (their Federal Reserve) for nothing. How well did that work for Japan? Short answer, not very well.
Why does what the Fed did matter?
1. Because in their statement, they essentially removed all mention of inflation being a risk. For more details on what the Fed said, check out “The Fed Translated.”
2. Because it showed that they are very concerned about the economic conditions not only in our country but elsewhere.
3. Because it raises the question of whether we’re going to see a Read more