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Business television and newspapers have made deflation a hot topic this week and, since Monday, Google has tracked 13,000 mentions of it.

Deflation is a recurring cycle in which the prices of goods and services fall. Isolated to one industry or sector, falling prices is the natural result of competition.

For example, when DVD players were first introduced, they were tagged at $800.

Today, you can buy them for less than $20.

Across many industries, however, and happening at the same time, falling prices can shut down the economy.  Rather than buy things on the cheap, people stop buying anything at all.  And why would they?  The same items will cost less tomorrow.

And this is the problem with deflation — it halts consumer spending and consumer spending makes up two-thirds of the U.S. economy.  When it stops, the economic result is dwindling corporate revenues which leads to:

1. Layoffs of the workforce, which leads to…
2. Less consumer spending, which leads to…
3. Dwindling corporate revenues, which leads to…

And the spiral continues.

Deflation can be much more insidious that its expansionary counterpart — inflation.  Inflation is when the prices generally rise over time and it’s an economic condition through which governments can comfortably navigate.  Deflation, on the other hand, is more rare and, therefore, fewer practical control measures exist.

Whether the U.S. economy will slip into deflation is a matter of debate.

The Fed has cut the Fed Funds Rate to promote economic growth and those changes can take up to 12 months to work their way through the economy.  Deflationary pressures we’re seeing today, in other words, may have already been addressed and corrected by Ben Bernanke’s 10 rate cuts in the last 14 months.

Until the market figures it out, though, expect that each mention of deflation will hurt the stock market and help the bond market — including the mortgage-backed variety.  This should help lower mortgage rates and make homes more affordable.

(Image courtesy: The Wall Street Journal)

Photo courtesy of creativecommons.org

CENTURY 21 Advantage Gold is excited to once again participate in the U.S. Marines Toys For Tots program. If you would like to donate to this wonderful cause please make sure all toys are new and unwrapped. We are collecting toys 9AM-5PM, until December 15, 2008 at the following locations:

Bensalem Office-2864 Street Rd. Bensalem, PA 19020

Corporate Center–1708 Welsh Rd. Philadelphia, PA 19115

Castor Gardens Office–7104 Castor Ave. Philadelphia, PA 19149

Elkins Park-201 Yorktown Plaza Elkins Park, PA 19027

Horsham Office-860 Welsh Rd. Maple Glen, PA 19002

Northwood Office–5267 Roosevelt Blvd. Philadelphia, PA 19124

Southampton Office-494 Second Street Pike Southampton, PA 18966

South Philadelphia Office–2010 Oregon Ave Philadelphia, PA 19145

Image by thinkpanama via Flickr

Real estate is such a quirky industry.  I work with a lot of investors, and most everyone that invests in real estate is looking for the same thing: a good deal.  Actually, even “owner-occupant” buyers now are looking for a good deal.  (Didn’t people used to look for a nice place to live that they could afford, rather than a good deal?)

Anyway, it seems to me, that even in this so-called buyer’s market – a good deal is hard to find.  Even properties in terrible condition are priced so that after someone buys the house and puts in all their “sweat equity” to fix it up, they may have spent more than the property is worth. And rental properties, forget it.  The majority of properties are not priced to “cash flow.”

What is going on?  Honestly, I think that sellers are just not ready to part with their historic equity.  At one point, their property had a certain value, and they just don’t want to give it up.  So the property sits and waits for someone who never comes, to come along and pay what it was once worth.

While some investors have decided to stay on the sidelines for a while and see how things shake out, many investors are ready to buy in this market; if only they could find a good deal.

Well, I know a lot of people have written a lot of books and done a lot of training camps on how to find a good deal, but let me just simplify it.  The way I see it there are two ways to help my clients find a good deal.  The first way is research.  Look at as many properties (online) as possible, analyze them, check the comps, check the condition, and hand-pick ones that are priced anywhere near a good deal.  As you can imagine, this is a slow, tedious, and random process, because there are far more properties on the market than any one person could hope to evaluate.  BUT – I have found good deals this way…

The second way I have found is to reach out to as many of my colleagues as possible and say “tell me when you have a good deal because I might be able to help you sell it.”  Not all of my colleagues think this is a good idea, but many will cooperate with me this way.

So the other day I was talking to a fellow Realtor, and I said “do you have any good deals listed” and he said, “yes.”  Cool!  So I look up the property he tells me and it actually did look like a pretty good deal.  This owner has been trying to sell the property for over 600 days!  The price has dropped almost $150k from asking down to the mid-$200k’s.  So I call up a client that I know would be interested in that area and price range and I say, “check out this deal!”  He checks it out, he thinks about, and finally he gets back to me and says, “you know that does look like a good deal.”  Let’s go take a look.  And what do you know, it’s sold! 

And that is why I say real estate is a quirky industry.  All these properties just sitting pretty on the market, but if you’re not careful, someone can still come along and snatch up your house before you.

For the 4th consecutive year, the government has set the conforming mortgage loan size limit at $417,000.

A conforming mortgage is one that, quite literally, conforms to the mortgage guidelines set forth by Fannie Mae or Freddie Mac.

The 2009 conforming loan limits, as released by the government, are:

• 1-unit properties : $417,000
• 2-unit properties : $533,850
• 3-unit properties : $645,300
• 4-unit properties : $801,950

Loans in excess of conforming loan limits are more commonly called “jumbo”, or “super jumbo” home loans, depending on their size. 

Out-sized mortgages like these are often more costly than their conforming-mortgage counterparts because jumbo loans are not guaranteed by the U.S. government like Fannie Mae loans are. 

There are exceptions to the loan limits, however.

Left over from the Economic Stimulus Act of 2008, specific, “high-cost” areas around the country have their own conforming loan limits, not to exceed $625,500.  There are 59 designated high-cost regions in the U.S., most of which are in California.

Loan limits are re-assigned each year, based on “typical” housing costs around the country.  Since 1980, as home prices have increased, so have conforming loan limits.  As home prices have fallen in recent years nationwide, however, the conforming loan limit has not.

Foreclosure is a hot topic among the press lately.  It’s hard to turn on the television or open up a newspaper without seeing a story about it.

But what’s most interesting about foreclosures is that they appear to be concentrated in just a few parts of the country. 

According to the foreclosure-tracking service RealtyTrac, 4 states accounted for more than half of nation’s foreclosures last month.

And those 4 states — California, Florida, Arizona, and Nevada — share some very similar characteristics including:

1. Their respective popularity with retirees and real estate investors
2. Their large home value increases earlier this decade

In looking at the rest of the country’s foreclosure data, the remaining 46 states combined accounted for just 48.8 percent of October’s foreclosures. 

That’s 1.06% per state on average.

Now, this isn’t meant to diminish the impact of foreclosures on the economy — quite the opposite.  Foreclosures harm to the national housing market because most mortgage lenders are national.  But, we highlight statistics like this to show that the foreclosure “problem” isn’t so bad in most parts of the country, relative.

Furthermore, mortgage lenders are intervening to slow the flow of defaults nationwide.  Following the lead of JP Morgan and Bank of America, CitiMortgage announced a sweeping plan this week to help homeowners avoid default and stay in their homes.

In a way, for as good as this news is for homeowners, it’s equally bad news for home buyers.  As the number of foreclosures decrease in any given market, it reduces the inventory of homes for sale.  Lower supply levels often lead to higher sale prices and less room to negotiate. 

And this may be what the banks are trying to accomplish.

Image via Wikipedia

If the amount of air that leaked from a typical home’s gaps and cracks was measured, it would equal the amount of air that leaves through an open window.

This is why so many Home & Garden experts recommend a recaulking of your home prior to the Winter — a solid caulk job can reduce a home’s Winter energy bill by 20 percent.

In this 2-minute video from Home Depot, learn how you can to identify leaky windows, and then how to fix them using caulk, putty knives and a host of other tools. Or, if DIY is not your style, find a competent contractor online.

The project is small so the costs should be low.

On the first Friday of every month, the Bureau of Labor Statistics releases its Non-Farm Payrolls report. 

More commonly, it’s called the “jobs report” and the October’s data is trending with the rest of 2008.

After shedding another 240,000 jobs last month, the economy has now put 1.2 million Americans out of work this year and unemployment rates have climbed to 14-year highs.

As a strange twist, though, today’s weak jobs data may lead to a positive turn for the economy and for housing in 2009. 

In the wake of the jobs report, members of Congress are already calling for both tax cuts and direct stimulus to reverse the course of the economy.  Both of these actions would put money back into U.S. citizens’ household budgets, spurring consumer spending nationwide.

Because consumer spending accounts for 70 percent of the economy, this would be expected to push the economy forward at a time when it natural forces are slowing it down.

In addition, markets are betting that the Federal Reserve will cut the Fed Funds Rate below its current 1.000 percent level.  This, too, would spur spending because the Fed Funds Rate is directly tied to consumer credit card rates and business credit lines.

Expectations for stimulus are one reason why mortgage rates have not risen today as high as they otherwise would have if this were a “normal” market.

Mortgage rates are slightly elevated as we head into the weekend, but don’t be surprised if there’s a late-afternoon push that brings them lower. For active home buyers, this could help home affordability as we cruise towards the holiday season.

(Image courtesy: USA Today)

The Federal Reserve confirmed what most of us already knew — getting qualified for a “prime mortgage” is increasingly more difficult.

In a quartely survey of 84 banks, 75 percent of respondant banks tightened mortgage guidelines over the last 3 months for the most qualified of home loan applicants.

“Prime” is a vague term when it comes to mortgages, but, historically, a prime borrower is one that can document:

• A well-documented credit history
• Very high credit scores
• Very low debt-to-incomes

Historically, banks bent over backwards to lend money to this class of borrower.  Today, they’re thinking twice.

The chart’s steep ascent reinforces that members of all tax brackets face consequences from the current credit market turmoil.  And, although some corners of credit looked poised to recover — interbank lending, for one — the mortgage market is yet unaffected and should be among the last to thaw.

All prospective home buyers should prepare for the likelihood that mortgage guidelines continue to toughen before they start to ease.  Mortgage applicants on the cusp of being approved today will almost certainly be turned down for a mortgage in 2009.

Owning real estate can require a tremendous amount of advance planning and, sometimes, looking at the past is the best way to prepare for what’s coming ahead. 

According to the Federal Reserve’s survey, what’s coming ahead is more mortgage application scrutiny.

Photo courtesy of creativecommons.org

Blogs have become ever popular in the last few years, but lately a cousin of the blog has taken over known as micro blogging. Micro blogging is a shortened form of a regular blog with posts lengthening 24 words or less (for some).

Two popular micro blog applications are Twitter and Yammer. They both allow groups of people to communicate in short text bursts that is seen by more than one person. There is an advantage to both programs whether your a working professional or a stay at home parent.

Yammer is a program used by companies to communicate internally.  A network is created by people with he same company email.  Users create a profile with picture, contact information, and other information they wish to share.  Our company uses Yammer to share communicate internally, and to talk about things that range from real estate information and advice to (lately) cheering for the Phillies! We find it an easy way for our team to stay intouch and to build our company spirit.

Twitter is an external micro-blog for anyone wishing to share general information with a group of people. Yammer asks you ‘What are you working on?” where as Twitter asks you “What are you doing.” Twitter can also be linked to your Facebook page to share with your friends.

More than a handful would-be home buyers stayed on the sidelines this year, waiting for Election Day to pass. 

The prevailing thought was that once the new President-Elect was identified, credit markets will systemically unfreeze and housing markets will return to normal.

If history is a guide, this is an unlikely scenario.

Election Day doesn’t figure to alter markets any more in 2008 than it did after the four previous presidential elections. 

If anything, post-Election Day market reaction has been muted:

• 1992 : Dow closes down 0.9 percent the day after Election Day
• 1996 : Dow closes up 1.6 percent the day after Election Day
• 2000 : Dow closes down 0.4 percent the day after Election Day
• 2004 : Dow closes up 1.0 percent the day after Election Day

But just because the stock market has a history of idling on the day after the election doesn’t mean that mortgage rates will rest easy this week.  The likely outcome is the opposite, actually. 

If investors believe the President-elect will successfully stimulate the economy, stock markets would likely rally, causing mortgage bonds to sell off and mortgage rates to rise. 

Higher mortgage rates means higher monthly payments on a home.

Or, if investors think the winning candidate will fail to revive the economy, money would flock to government bonds as a place of safety.  This dollar flow would occur at the expense of the mortgage market, causing rates to rise in this scenario, too.  Again, higher home payments.

Of course, it’s as difficult to predict post-Election market conditions as it is to predict the election itself but one thing is for certain — rates may rise and fall before the week is out, but credit guidelines will remain extra-tight.  Getting approved for a mortgage won’t be any easier — no matter which party wins the Presidential Election.

Source
Will the election drive the Dow?
Eamon Javers
Politico
https://news.yahoo.com/s/politico/20081022/pl_politico/14826