As the economy shows more signs of a slowdown, this trend is likely to continue.
Although the real estate industry would prefer otherwise, foreclosures continue to make headlines. The latest data showed superficial relief, with September foreclosures down 8% from some 243,000 in August, but still more than double last year -- and still with more to come.
It may be a harsh analogy, but I often think of foreclosure buyers as the forest-floor ants consuming the dead wood to clean the forest. That means three things. First, as I see it, the sooner we get through this credit mess, the better. Second, the faster properties get through the foreclosure process and find buyers, the sooner we'll get through the mess. So third, foreclosure buyers clean out the dead wood (I like) and get great bargains in the process (I also like)....more
Wednesday
Thursday
Interest Rates Defy Fed's Recent Cuts...
Interest-rate cuts by the Federal Reserve are normally bad news for savers and good news for borrowers. But that scenario hasn't been playing out fully since the central bank began cutting rates in September.
The Fed has trimmed a total of three-quarters of a percentage point from short-term rates in recent weeks. However, rates on such popular savings products as money-market funds, savings accounts and certificates of deposit haven't fallen anywhere near that much, and some have even held steady. Meanwhile, rates on certain types of borrowings, including home-equity loans and auto loans, remain stubbornly high.
Behind the discrepancies is continuing tightness in credit markets, where many banks raise much of their capital. Instead, banks remain especially eager to attract consumers' deposits, and are willing to pay savers handsomely to keep the money coming in the door. At the same time, banks' higher cost of raising capital is keeping many of them from lowering rates on some kinds of loans
"Even though the Fed has eased three-quarters of a percentage point since September, the market has only gotten between 0.25% and 0.50% of that easing," says James Bianco, president of Bianco Research LLC, a market-research firm in Chicago. "If you look at it from a saver's and borrower's side, it shows you that the market is still not functioning properly."
That's fine with savers. Average yields on money-market mutual funds, for example, whose yields typically move in line with changes in the Fed funds rate, are hovering at 4.76%, compared with 5.06% in mid-September -- roughly half the amount they'd be expected to drop, says Peter Crane of Crane Data LLC.
Declines in CD rates also are relatively modest. One-year CDs currently average 3.61%, down from 3.78% in mid-July, and five-year CDs are at 3.92%, down from 4%, according to Greg McBride, a senior financial analyst at Bankrate.com. By contrast, he says, comparable Treasurys have dropped a full percentage point over the same period. "Normally, CD yields would drop like a stone, and now, they've been dropping like a feather," he says.
To be sure, banks may still trim yields on deposits in the wake of this past Wednesday's Fed cut in the federal-funds rate, charged on overnight loans between banks. The move, aimed at bolstering the economy amid plunging home construction and eroding real-estate values, pushed the Fed rate down a quarter point to 4.5%. However, market experts expect consumers will continue to enjoy favorable yields on many savings products in the 4% to 5% range, with the highest yields on savings products still above 5%. "Yields are going to drop a little bit, but won't drop as much as we would expect in normal circumstances," Mr. McBride says. more...
The Fed has trimmed a total of three-quarters of a percentage point from short-term rates in recent weeks. However, rates on such popular savings products as money-market funds, savings accounts and certificates of deposit haven't fallen anywhere near that much, and some have even held steady. Meanwhile, rates on certain types of borrowings, including home-equity loans and auto loans, remain stubbornly high.
Behind the discrepancies is continuing tightness in credit markets, where many banks raise much of their capital. Instead, banks remain especially eager to attract consumers' deposits, and are willing to pay savers handsomely to keep the money coming in the door. At the same time, banks' higher cost of raising capital is keeping many of them from lowering rates on some kinds of loans
"Even though the Fed has eased three-quarters of a percentage point since September, the market has only gotten between 0.25% and 0.50% of that easing," says James Bianco, president of Bianco Research LLC, a market-research firm in Chicago. "If you look at it from a saver's and borrower's side, it shows you that the market is still not functioning properly."
That's fine with savers. Average yields on money-market mutual funds, for example, whose yields typically move in line with changes in the Fed funds rate, are hovering at 4.76%, compared with 5.06% in mid-September -- roughly half the amount they'd be expected to drop, says Peter Crane of Crane Data LLC.
Declines in CD rates also are relatively modest. One-year CDs currently average 3.61%, down from 3.78% in mid-July, and five-year CDs are at 3.92%, down from 4%, according to Greg McBride, a senior financial analyst at Bankrate.com. By contrast, he says, comparable Treasurys have dropped a full percentage point over the same period. "Normally, CD yields would drop like a stone, and now, they've been dropping like a feather," he says.
To be sure, banks may still trim yields on deposits in the wake of this past Wednesday's Fed cut in the federal-funds rate, charged on overnight loans between banks. The move, aimed at bolstering the economy amid plunging home construction and eroding real-estate values, pushed the Fed rate down a quarter point to 4.5%. However, market experts expect consumers will continue to enjoy favorable yields on many savings products in the 4% to 5% range, with the highest yields on savings products still above 5%. "Yields are going to drop a little bit, but won't drop as much as we would expect in normal circumstances," Mr. McBride says. more...
Selling Your Property In A Slow Market
Look at the prices of homes getting sold, and the property market's decline seems no worse than a rough day in the stock market. Look at the number of unsold homes, and you realize there's a world of financial pain out there.
True, these unsold homes may eventually get bought at decent prices. But in the meantime, the owners are often bleeding money -- and many of them would be smart to slash their asking price and go for the quick sale.
• home prices are down just 4.5% from their July 2006 peak.
Yet even as prices appear pretty much unchanged, the number of unsold homes has soared. At the current pace of sales, it would take more than 10 months to clear this backlog, according to the National Association of Realtors.
Sure, it would be emotionally draining to have your home on the market for more than 10 months. But it probably wouldn't be a financial disaster -- as long as you're still in the house and you can comfortably cover the mortgage.
Maybe, however, you have an adjustable-rate loan that's now unaffordable. Maybe you're trying to unload a vacation home. Maybe you moved cross-country for a new job, but your old house still hasn't sold.
The monthly cost of carrying a vacant home could equal 1% of a home's value, figures Charles Farrell, an adviser with Denver's Northstar Investment Advisors. After all, you still have to pay utilities, insurance, property taxes, maintenance and, of course, the mortgage.
What if the mortgage is paid off? There's still an opportunity cost. The equity in your home could instead be invested in, say, bonds yielding 5%.
To make matters worse, "prices could be lower a year from now," Mr. Farrell warns. "There's also the risk of owning a physical asset. I'm thinking about things like fire, broken pipes, theft." more...
True, these unsold homes may eventually get bought at decent prices. But in the meantime, the owners are often bleeding money -- and many of them would be smart to slash their asking price and go for the quick sale.
• home prices are down just 4.5% from their July 2006 peak.
Yet even as prices appear pretty much unchanged, the number of unsold homes has soared. At the current pace of sales, it would take more than 10 months to clear this backlog, according to the National Association of Realtors.
Sure, it would be emotionally draining to have your home on the market for more than 10 months. But it probably wouldn't be a financial disaster -- as long as you're still in the house and you can comfortably cover the mortgage.
Maybe, however, you have an adjustable-rate loan that's now unaffordable. Maybe you're trying to unload a vacation home. Maybe you moved cross-country for a new job, but your old house still hasn't sold.
The monthly cost of carrying a vacant home could equal 1% of a home's value, figures Charles Farrell, an adviser with Denver's Northstar Investment Advisors. After all, you still have to pay utilities, insurance, property taxes, maintenance and, of course, the mortgage.
What if the mortgage is paid off? There's still an opportunity cost. The equity in your home could instead be invested in, say, bonds yielding 5%.
To make matters worse, "prices could be lower a year from now," Mr. Farrell warns. "There's also the risk of owning a physical asset. I'm thinking about things like fire, broken pipes, theft." more...
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