The real estate blog.

The Federal Reserve Board decided to cut interest rates again by an aggressive .5% only eight days after an aggressive .75% cut. While a lot of activity took place in the stock market, the Dow ended up only slightly better than it had been before the announcement - a 37 point loss. The key 10 year bond edged down two basis points in yield.

Housing and the credit markets are clearly a concern, but I believe the Fed is doing what it thinks is the best to restore confidence to the economy. Some complain the restored confidence comes at the cost of the value of the dollar. They’re right to a certain extent, but a lower dollar presents opportunities in itself like higher foreign investment, lower trade deficits and increased exports for the United States. At the end of the day, what we need is confidence.
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The Fed cut rates for the second time in nine days dropping the key overnight lending rate to 3%.

Stocks reacted positively, surging above 140 points after lingering in negative territory ahead of the decision.

Short term mortgage rates will look incredibly favorable in the coming weeks and months.

A detailed analysis will follow later today.

I was waiting until 4th quarter numbers came out before I attempted to give some predictions on the future of real estate locally and nationally. Then last week happened.

With this amount of volatility in the world, there’s no way anybody can accurately predict what’s going to happen in real estate in 2008. Rogue traders upsetting world markets and dictating Fed policy? Give me a break!

I’m going to pass on the predictions this year. Nobody even knows what the Fed will do to rates tomorrow. A .25, .5, .75 cut wouldn’t surprise me. No action wouldn’t surprise me either. An increase? That would be shocking.

There is one thing we can be sure of this year and that is short term interest rates are trending down. This will help some people with resetting adjustable
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Look at the headline…New home sales: Biggest drop ever. Now look at the market’s reaction. Stocks up sharply. This was after weekend futures pointed to a bad, bad day today. Bonds reacted in a way that should be expected with yields dropping and prices increasing. Oil was up slightly and the dollar dropped slightly.

What does Wall Street know that we don’t? Bad housing news should send the markets tumbling, but it didn’t. The Fed meets to discuss rate policy on Wednesday and Thursday after last Tuesday’s surprise 3/4 point cut. It was widely expected the Fed would cut more this week, but the revelation of a rogue trader at a French investment bank as the real source for last week’s world market woes may leave the Fed holding instead of cutting. Wall Street is still betting on another cut of .25 to .50.
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Angelo Mozilo’s behavior concerning his severance package from embattled mortgage lender Countrywide (CFC) reminds me of a toddler caught stealing candy from a store. Somehow Mozilo thinks that if he puts back the money, nothing bad will happen to him.

If you recall, Mozilo was slated to receive $115 million in cash and stock plus perks after selling the troubled lender to Bank of America (BAC). The outcry of the largess in the face of the credit crisis prompted The House Committee on Oversight and Government Reform to “invite” the CEO to testify about - tens of millions of dollars in severance payments and other compensation. I request that you be prepared to provide your perspective on this reported pay package.

I suppose Mozilo thinks that if his pay package disappears,
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Fourth quarter statistics are out for the Wasatch Front and while the number of homes sold is down, the prices are still seeing gains. However it is very clear that no area of the country will be immune from the credit crisis.

The Deseret News reports -

Despite the steep drop in sales, the prices of houses along the Wasatch Front held their value, with the median price rising 1.7 percent over the same 12-month period.

Specifically, house prices in Northern Utah went up in the fourth quarter -

The median single-family home price in each county, however, went up. Weber had the highest median-price appreciation, at 11.4 percent, followed by Tooele County at 8.6 percent, Davis at 3.3 percent, Salt Lake at 1.7 percent, and Utah County at 1.3 percent.
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Struggling homeowners who can now refinance due to favorable short term interest rates can thank French fraudster JГ©rГґme Kerviel for their new found fortune.

The Fed has made two huge rate cuts in the last six months based on misleading information. In September the Fed made a huge .5% cut based on August’s employment numbers that turned out to be more favorable than originally stated. Tuesday the Fed made a .75% cut based on U.S. stock market futures that predicted huge losses after Monday’s holiday. Most world markets suffered losses on Monday that were mostly attributed to reactions to the deteriorating credit and real estate markets in the U.S.

Today we found out the real reason for those losses…Mr. Kerviel -

In one of the banking world’s most shocking
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For the first time in about three months, I’m feeling some confidence in the housing and credit markets recovering. Subsequently, I believe a severe recession will be avoided for now. I’ve warned about anyone attempting to call bottom, but I definitely see a light at the end of the tunnel.

The Fed’s rate cuts earlier this week and subsequent activity in the bond market have made both long and short term mortgage rates highly attractive, especially for refinances. The one missing ingredient to this formula was higher loan limits to help high cost real estate markets, chiefly California.

Today a bipartisan stimulus proposal was reached by Congress that besides sending out checks to most taxpayers, will provide a huge stimulus to the housing market by raising the conforming loan limit in high cost areas to $625,500 and make qualifying for FHA loans easier.
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In an abrupt turn of events yesterday it seems Angelo Mozilo, CEO of Countrywide Financial (CFC), is looking at his “golden parachute” turn to a lead parachute.

Last week, Bank of America (BAC), announced it would buy the troubled mortgage lender for $4 billion in stock, bailing out the company suffering from the mortgage crisis and providing Mozilo with a $115 million compensation package for running the company into the ground.

It appears B of A has had a change of heart. The Wall Street Journal reported yesterday the deal with Countrywide could go south unless the terms of the deal are renegotiated.

Countrywide Financial Corp. shares dropped nearly 10% Friday amid growing investor fears that Bank of America Corp. could walk away from its agreement to acquire
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One would think that with so many people waiting on the sidelines to buy a house and with so many others losing their houses that population demand would cause rent prices to increase. In the most bubblicious areas of the country, the opposite is happening. Rents are decreasing.

That gives you an idea of exactly how overbuilt some areas of the country are.

Vacancies have risen in 29 markets in the fourth quarter of 2007, including Las Vegas, Palm Beach, Memphis, Orange County, Calif., and Orlando, according to Reis Inc., a New York real-estate research firm. Ron Witten, a Dallas-based housing analyst, estimates there are 760,000 vacant condos and homes for sale nationwide beyond what the market could normally carry, in addition to a surplus of 350,000 vacant rental properties.
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