Hello to all of my colleagues
As emotional and painful as the last week has been, we have arrived at a key time in this nation's financial recovery. On November 4th, America made their choice of who they wanted to lead us for the next four years. Whether it was Senator McCain or Senator Obama, we needed to get past the election before the volatility in the markets could cool. It will take a market trading strictly on fundamentals before the fixed mortgage rates will have a chance to move to levels that will once again help to stimulate the housing market.
As has been the case as of late, the day of a big event meant optimism which resulted in stocks, bonds, and commodities all doing very well. 30 year Mortgage rates that had once again climbed to almost 7%, fell over 1/2 % in just three days. Unfortunately, as has also been the case, the next two days resulted in losses that show us clearly that volatility is still the obstacle. The DOW JONES AVERAGE hit a high of 9,700 on Monday. As I write this, the DOW is 8618, down 1100 points from its high on Monday. Why is that?
Investors hate uncertainty. It's true that we know who will lead us out of our financial woes but it's important that Obama pick his cabinet and start working with Fed Chairman Bernanke and Secretary of Treasury Paulson to move ahead soon. Look for another stimulus package to be announced soon. I believe Congress can not and will not wait for January to start implementing plans to stem the tsunami of foreclosures and to stimulate Real Estate sales by taking actions to lower mortgage rates. I believe they will offer tax credits to all Americans that buy a home during a specified period of time. Furthermore, look for government sponsored marketing to those that do not own homes currently. As I told you before, the government should join both Realtors and Lenders in marketing to those that are renting now. Those that have homes to sell have fallen out of the market...they must sell current homes. Renters that are qualified should be looking to take advantage of an opportunity that they may never see again.
Big business is in trouble. GM, announced they were suspending research and development on many of their auto lines. They are in desperate need of cash to cover losses and a proposed merger with Chrysler. Look for the government to be involved in the survival of those two companies.
The silver lining in the mess we're in is that plunging oil prices give much needed relief to the transportation industry. Oil fell to $59 per barrel today as gasoline has fallen to just above $2/gallon. Just 3 months ago, it took $67 per tank of gas for me. Yesterday, it took less than half of that. That, my friends, is an unintended economic stimulus for all that is far more effective than sending checks to tax payers. Gas is a big expense to both the trucking and airline industries and companies on the ropes have a temporary "stay of execution".
Though my crystal ball is broken, I will make a prediction. Mortgage Bond Security prices (which determine fixed mortgage rates) are currently near a very key resistance point. All it will take is a flight to safety from stocks to MBSs to send rates down to historically low levels. The Federal Government is clearly committed to help that happen. While they have no direct control on rates, by buying MBSs through both the treasury and through government controlled Fannie Mae and Freddie Mac, they can send prices higher which will result in rates falling. Both Secretary Paulson and Fed Chairman Bernanke have been clear that they support this. Look for rates to head down between now and year end (which is annually where rates are at their lowest anyway). There will be a time that rates should stay down for an extended period of time.
Friday it was announced that 240,000 jobs were lost bringing unemployment to 6.5%. In response to the global economic and financial melt down, the Bank of England surprised everyone with a staggering 1.5% rate cut to drop their cash lending rate to 3.0%. The European Central Bank chipped in with a more modest 0.50% cut to lower its rate to 3.25% while the Swiss National Bank also cut its cash rate by 0.50% to 2%. The Czech Republic's central bank joined the rate cut party with a 0.75% cut to drop its key lending rate to 2.75%. These rate cuts should allow the U.S. dollar to at least temporarily gain some strength against these other country's currencies and should help lower oil prices.
We have all endured some of the toughest, leanest years in our careers. While we have never before in our lifetimes gone through this kind of economic turmoil, we have never seen our government and our Fed and even foreign governments working together and being so proactive in turning this world wide economic slide around. We all knew what policy makers have only recently admitted...the way back is through Real Estate. At some point, just like the recession of '01, Real Estate will be a great value as Mortgage rates drop below historical record lows with home prices with amazing values. I am realistic...we will not see an abrupt turnaround. BUT, I believe we will see a noticeable improvement in the amount of buyers in the market by Spring. This will be a gradual improvement as the government announces incentives and mortgage rates fall. Now that the world economies are no longer in denial, aggressive global moves will lead to results.
So, you've managed to survive this far. Hang in there...work hard. Call your entire warm data base to talk to them about where you see the economy headed. Trust me, this is one subject that they will be more than eager to hear your point of view. By the time this market starts to turn, we will have developed a habit that we always should have had...a system of staying in personal contact with those that see value in our business! We are like farmers planting the seed...the crop will eventually grow.
Until my next update, be well and above all...stay calm! Hard work always pays off! Rick
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