Archive for December, 2012

Oh Really! FED can’t figure out bank policies

Monday, December 24th, 2012

I have been blogging about the bank problem for four years. I guess the Federal Reserve doesn’t read this blog. Policy makers (Federal Reserve Bank/Ben Bernanke) are disappointed that lower yields on mortgage-backed securities haven’t led to more savings on home loans after the Fed expanded its balance sheet to an all-time high of $3 trillion through bond purchases. Bernanke this month called the trend “unfortunate”. “The gap between the bond yields and home-loan rates is blunting the economic benefits of the Fed’s record accommodation” from New York Fed President William C. Dudley. Well, if there is no benefit, stop it. Once stopped you will see mortgage rates jump 50% in a very short time. The banks are ‘for profit’ corporations. Like any business, they make decisions based on the government policies, market conditions, etc. then choose what is in their best interest to make a profit for their owners. I thought the Federal Reserve had smart people running that organization.

Bank projected income is at all time high

Wednesday, December 19th, 2012

With banks making money and projected to earn record income in 2013, what is next? The pendulum is about to swing back towards easy money, but at higher rates. In 2007 the pendulum for easy money was at it’s highest, then in 2011, it swung to the tightest lending in 30 years. Now, the pendulum is swinging back to normal and easier lending practices. If this does happen, you will see house prices up 10% next year and the 30 year mortgage rate 50% higher then right now. Quick facts for the 4th qtr of 2012:

- building permits are the highest in four years

- Federal Reserve keeps pumping money into our system

- China has increased it’s stimulus to grow at 7% a year

- European Union stimulus has smoothed out Europe’s economy and will keep Greece

- Corporations with record amounts of cash, ready to invest

- Consumer confidence at a four year high

Agents getting lazy or losing interest?

Tuesday, December 18th, 2012

Every December, we have our annual Subdivision Holiday Party. Each year the three real estate agents that live here try to dominate the conversation with what has sold, what has not and what they are working on. This year I did some research of the county tax records prior to the party and I memorized the numbers. At the party, after one drink the topic turned to real estate. To my surprise the agents in the room admitted they did not know what the two recent properties had sold for. I spoke up and with confidence let everyone know. As the conversation continued, the agents admitted they have not been very active and didn’t think much was going to happen to the real estate market. This is a huge change from years past. With buyers and sellers having the Internet to guide them, more and more plan to buy and sell without an agent.

Software changes lead to inflation

Tuesday, December 11th, 2012

Every time Microsoft, Apple, Google, or Yahoo changes their software it cost businesses money to keep up with the change. Every time Internet Explorer, Safari, Firefox or Chrome have a new version or change their algorithm it costs businesses money to keep up with the change. At some point, those business stop absorbing the extra cost and they pass it along to the customers. Higher prices mean higher inflation. After five years of absorbing higher operating expenses due to the continuous changes, will be raising prices on Jan 1, 2013

Buying a new home from a builder

Saturday, December 8th, 2012

In the past you could buy a new construction home from the builder and just sit back and watch your property values go up. You buy in the early stages of a new development. The builder offers lower prices to the first to buy, then as the development gets more sold out, the builder keeps raising the price. The buyers in the end pay much more than the early buyers for the same house. Unfortunately, that formula did not work for those that bought in 2007-2008 as builders went out of business and the vacant properties went back the the bank. The bank sold off the lots and spec homes at deep discounts. Now, the builders are making a come back. While the lots have been discounted, raw materials have gone up. Also, since 2008, two million construction workers left the field, so now labor prices are increasing. With interest rates still low, the builders are selling properties at the fastest pace since 2008. The prices way above the prices offered by similar properties owned by the government and banks. The better the builders do, the better for the values of all real estate.

Not one house for sale in my subdivision

Wednesday, December 5th, 2012

For the first time in over ten years, nothing is for sale in my subdivision. What does this mean? For buyers, you will just have to wait. For sellers, you control the market and the price. And you know what I think, the next house on the market will have a higher price than the last one that sold. Buyers will be quick to buy and the house after that will be at a higher price. The prices won’t be as high as they were in 2007 and they will not be as low as 2011. See you next year to see if I am correct.

“fiscal cliff” warnings are a daily headline

Tuesday, December 4th, 2012

Were you waiting until after the election to make a decision? Are you now waiting until after the “fiscal cliff” is resolved? There is always one more issue on the horizon to cause a delay in making decisions. Successful people make decisions based on the here and now. Some recent decisions: Corporations are paying out high dividends now because they are taxed at a preferential rate of 15 percent, next year they could be as high as 39.6 percent; investors are buying houses now, next year they will be more expensive; homeowners are refinancing now, before rates go up; retirees are moving to states with the lowest tax rates; used cars are at an all time high, so people are buying new; on and on!! Financial decisions are being made every day, yet I continue to see many people delay.