My New Blog

The U. S. Senate agreed to move forward on a housing relief package yesterday to cure the housing market. Some got off their medication long enough to propose to raise the down payment for FHA to 3.5 percent of the sales price when just a few months ago they were going to lower the down payment to 1.5%. The bill will also allow 4 billion dollars to buy and refurbish foreclosed homes as well as $100 million to help provide advice to homeowners behind on their mortgages. The major part of the bill is to heal the builders, allowing them to “carry back” recent losses to earlier years of profit. The cost to us, the taxpayers will be approximately 6 billion dollars. The Laborers International Union of North America estimates that the bill would provide 4.1 billion in tax refunds for builders for 2004 with as much as a third going to the 15 largest homebuilders. Giving CPR to the builders is one thing, but providing them with a whole new body is another. Maybe the plastic surgeons in the legislation will want to consider the rest of us that have also lived through these past few years. From the lack of employment numbers that came out today there are more than a few real estate agents, carpenters, furniture stores, and lenders that could use an infusion of cash. And the current homeowners the legislators say they want to save? Stop doling out the sugar pills and throw out the appraisals. Allow homeowners that purchased in 2004 and 2005: primary, second homes, investors to refinance their mortgages at a lower rate without an appraisal. Or the foreclosure infection will continue to spread.

FYI: Mexico’s economy is doing well with the continued opening of manufacturing plants from cars to clothes. Mexico’s middle class are now able to buy homes thanks to financing arrangements made with local banks and builders building affordable housing.

Diane Gerdes

U. S. Markets were doing the happy dance this week when unexpected strong corporate earnings from Ford (from European sales), American Express (from overseas business), and Goodyear Tires (overseas purchases) steadied the Stock Market. According to the unemployment claims more people are working and the combination contributed to Wall Street’s good mood. Reports in major publications crooned that the worst was over. For those of us that believe that we are already in a recession, the reports stated that we are coming out of it. For those who believe we are not in a recession, the reports stated the economy has dodged a bullet. The markets ignored any reports pertaining to financing or housing. With all of this “good news” it is conventional wisdom that the Fed will only drop the Fed rate .250 and it may be the last change for awhile. Cutting the rates may have helped banks borrow money cheaply but it has hurt the worth of the dollar overseas and has helped the continued climb of oil rates. Also with the Chinese purchasing cars in record numbers it has only increased demand for oil and therefore kept the price of oil at historic levels.

FYI: Look at your property tax bill! Arizona has always enjoyed being one of the few states with low property taxes. Not so much anymore in some areas. Unhappy with your property tax rates? Call your legislator or write to Janet (Napolitano).

DIANE GERDES

The U. S. stock market jived to a different beat than the rest of the world all week. Friday was a banner day for Wall Street even though Citigroup, Chase, and Merrill Lynch posted gut wrenching losses with amounts that are unprintable. What the stock market heard is “the losses were not as severe as projected” and did a little boogie that made for one of best days for stocks in several years. Even the unexpected jump in the world’s most widely used interest rate; the London interbank offered rate (Libor) could not dampen the market’s happy feet. Those of us that have some sort of adjustable rate mortgage do not feel like dancing. The music that would get our feet tapping would be “Please lower the A.R.M. rates so we can afford our homes when our rates adjust tune” or maybe the more popular “You have to lower the rates so our buyers can afford their homes”. Now that would make us feel like dancing!

FYI: Banks added on fees for investor loans effective immediately which translates into higher interest rates for all investors. Fannie Mae and Freddie Mac are discontinuing all no income verified or “stated income” programs regardless of credit scores and down payment. Several banks have “portfolio products” that will still offer “stated” programs.

DIANE GERDES , VICE PRESIDENT

Like Cousin Eddie from the “Vacation” movies, recession has made an unwelcomed stop at the U.S. economy. Since 1854 the U.S. has experienced 32 cycles of economic growth and pull backs. Since 1980 we have had 4 recessionary periods. A recession is defined as a decline in economic activity measured by: unemployment, incomes, production and consumer purchasing. The government tries to prevent or at least soften the effects of economic pull backs or recessions by tax cuts to give us more money to spend and decreasing the fed rate to help banks borrow money. The real estate market weakens before recessionary cycles. This time the real estate market is the recession. To quote Gary Schlossberg, economist at Wells Capital Management, we are more in a “fear-cession” than a “recession”: businesses and the government are taking steps to avoid a full blown, long term, recession. He also pointed out that housing prices have fallen 20% or more in some markets, but between 1998 and 2006 that there was a 225% increase in home prices in some areas. The two worst recessions were in the 1930’s and in 1982. Farmers were losing their farms in 1982 when crop prices plummeted along with all of the other economic issues, and in the 1930’s dry, windy, weather killed the crops. Today, the farmers are doing well and changing the model. So maybe if this is a recession, like Cousin Eddie, we will have to withstand some annoying times before it quickly moves on.

FYI: If you go to NASCAR this weekend, call ahead for road closures. Why is Go Daddy‘s new, hot car not driving here this weekend?

And if you are coming to Tempe on Sunday the Ironman competition will have roads closed around ASU, Tempe Town Lake, and some parts of Scottsdale. The high tomorrow in Chicago will be 38 degrees. Fahrenheit.

DIANE GERDES, VICE PRESIDENT