THE FED FINALLY GETS IT! THEY ARE ON OUR SIDE!

Hello to all of my colleagues in Real Estate

WOW! Hold on for dear life! The actions of the last two weeks brings to mind the phrase that we are all familiar with..."Survive to Thrive!". We have to live through the tough times to get to the good ones. It could be that the good times are closer than you think.

We have been through two of the most challenging years in recent history. Many Real Estate and Mortgage professionals have exited the business...many that have been veterans of many years. There was a time that there literally seemed to be no buyers looking. As the credit crisis deepens, lending gets tighter and tighter. Inventory of homes is at an all time high. In January of 2007, when I began to write this column, I told you all that the Fed was in denial when they kept saying that the sub-prime crisis was an isolated problem and that there was no indication it would spread to the rest of the economy. In March of '07, I predicted that the Feds would start lowering the Fed Funds rate by the third quarter. In the beginning of August, Ben Bernanke stated that the economy was solid and the weakness in the economy was limited to housing. Two weeks later, in an emergency meeting, the Fed admitted that the problem may be more serious than they thought by lowering the Discount Rate by 50 basis points. Since that day, the Federal Funds rate has dropped to 2.25% from 5.25% with the Discount Rate dropping to 2.5% from 6.25%. The Prime rate is now just 5.25%. Furthermore, it's clear that there will be more cuts ahead.

It is equally clear that the Feds have done a 180 in their thinking and now are convinced that the key to the economy's recovery is in the recovery of Real Estate! As of March 5^th, mortgage rates were at a high for one year, topping off at 6.625%. So, with all of the Fed action, mortgage rates were no lower than they were before they stepped in. WHY? The answer can be found in the perception that investors have about the safety of Mortgage Backed Securities. As more and more losses were announced by banks and other institutions, Wall Street investors chose commodities over Mortgage Securities. This is one reason oil peaked out at $112 per barrel and gold hit $1,032 per ounce at the same time mortgage rates were at their highest point.

What has changed to make me so excited by what is ahead for Real Estate? Bernanke and company are finally using the right bullets and hitting the right targets. Last week, they announced that $200 billion of treasuries would be made available to banks at the end of March and they were encouraging them to use mortgage backed securities as collateral. Last Friday, Bear Stearns made an emergency call to their bank, JP Morgan, in a bid to secure financing that would keep them going. JP Morgan went to the New York Fed and worked out a deal that would hold them harmless should Bear Stearns not survive. (Later it was announced that JP Morgan would buy Bear Stearns for just $2/share!) The Fed also announced they were dropping the Discount Rate by ¼ point, an unusual move for a Sunday.

By Monday morning, the Fed announced that all financial firms, not just banks, could now go to the discount window for financing, effective immediately. Once again, Mortgage Backed Securities will be acceptable collateral. This was done to prevent any other financial companies from suffering Bear Stearn's fate.

 Finally, on Tuesday, it was widely expected that the Federal Reserve would lower both Discount and Fed Funds Rates by a record 1%. They chose instead to limit the easing to ¾%. As a result of all of these moves, investors are now once again buying mortgage backed securities when Wall Street has a bad day. Oil has "plummeted" to $100 with gold down to $908! The dollar had its best week against the Euro, largely because the Fed did not cave in by easing 1%.. Mortgage rates are now under 6% and should continue to fall and hopefully stay low. This MUST happen for Real Estate to recover.

Look for the Fed's next move to be the direct purchase of Mortgage Backed Securities. This will increase liquidity for banks and encourage them to lend more. The Fed is on OUR side and we all will be the beneficiaries!

Things have changed for sure. It is in this economy's best interest that Real Estate recovers and everything is being done to make that happen. Let your buyers and sellers know what is happening. It's a great reason to be in contact with those you've worked with during the last few years. Be ready for the best year of business in many.

 I will update you as there is more news! Until then, I wish you good times and good business!