ECONOMIST PREDICTS STRONG TEXAS HOUSING MARKET IN 2009
Despite the negative news surrounding the real estate industry, now continues to be a great time to buy a home in Texas, said Dr. Mark Dotzour yesterday, speaking before the Beaumont Board of Realtors.
Dotzour, the chief economist for the Real Estate Center at Texas A&M University, said the states’s housing market should thrive in 2009 thanks to affordable housing and steady job growth.
However, he also told the group to expect a decline in new home construction this year, partly because more new homes could inflate the market, causing existing home values to decline.
Although the latest report from California-based foreclosure listing firm RealtyTrac showed an 81 percent increase in the number of homeowners facing foreclosure last year, Dotzour said he does not expect foreclosures to become an issue in Texas.
“Our home prices have been going up,” he said, “and when your house is going up, you’d rather sell it then give it back to the bank.”
Source: Beaumont Enterprise
Read MoreFED CUTS KEY INTEREST RATE
The Federal Reserve Board’s Federal Open Market Committee cut its short-term interest rate by a half of a percentage point today to 4.75 percent.
According to the committee, the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally.
The committee said today’s rate cut is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.
The cut to the federal funds rate is the first since June 2003.
In a related action, the Board of Governors also unanimously approved a 50-basis-point decrease in the discount rate to 5.25 percent. The discount rate is the rate banks pay to borrow directly from the Federal Reserve.
Source: federalreserve.gov
Read MoreBernanke: Fed Will Act As Needed to Limit Economic Fallout From Credit Mess
Federal Reserve Chairman Ben Bernanke pledged Friday that the central bank will “act as needed” to keep the credit fallout that has unhinged Wall Street from hurting the national economy.
In anxiously awaited remarks, Bernanke didn’t specify what the Fed’s next move will be but made clear policymakers are keeping close tabs on the problem, which has roiled markets in the United States and around the globe.
Even as Bernanke vowed Fed action, he sought to temper expectations.
“It is not the responsibility of the Federal Reserve — nor would it be appropriate — to protect lenders and investors from the consequences of their financial decisions,” Bernanke said. “But developments in financial markets can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account when determining policy.”
Many believe the odds are growing that the Fed will cut its most important interest rate, now at 5.25 percent, by at least one-quarter percentage point on or before Sept. 18, its next regularly scheduled meeting. The Fed hasn’t lowered this rate in four years.
The Fed “will act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets,” Bernanke told an economics conference here.
To guide the Fed in terms of what its next move will be, Bernanke said policymakers will pay especially close attention to the “timeliest indicators” as well as information gleaned from businesses and banks around the country. Economic data that was taken before the credit markets really seized up in August will be much less useful to policymakers to assess the country’s economic health, he explained.
It was his first speech — and his most extensive comments — since the credit crunch took a turn for the worst in August. The carnage in credit markets and the turmoil on Wall Street pose the biggest test of Bernanke’s skills since taking the Fed helm 19 months ago.
President Bush was announcing steps Friday to aide homeowners who are having trouble making the payments on risky mortgages.
Source: FoxNews.com
SUBPRIME LOAN FORECLOSURE FORECASTED
Based on results from its recent mortgage study (see article), the Center for Responsible Lending (CRL) has predicted that one out of five subprime loans issued during 2005 and 2006 will fail, resulting in foreclosure for millions of American homeowners.
Dr. Mark Dotzour, chief economist with the Real Estate Center, says the real vulnerability in the residential housing market is in the entry-level housing category in regions where a large percentage of buyers have purchased with little or no down payment.
“In recent years, investor thirst for the higher yields of mortgage-backed bonds has allowed mortgage lenders to relax credit standards and issue loans that have a much higher risk of foreclosure,” Dotzour said. “It stands to reason that when you make riskier loans, you are going to have more foreclosures.”
Dotzour does not think mortgage companies or mortgage bond holders will be hurt when the expected tsunami of foreclosures hits. Instead, hedge funds, pension funds and endowment associations that have been chasing yield by accepting more risk, or large commercial banks offering complex derivatives to allow traders to hedge their risk in mortgage bonds are likely to feel the pinch.
“Nobody knows exactly where the ultimate risk really lies in the financial markets,” Dotzour said. “But one thing is for certain. Those who will be hit the hardest will be families that lose their homes to foreclosure.”
Source: Real Estate Center
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