Economic Update Nov 13th The recent drop in the stock market was fueled by Secretary Paulson's announcement the Government will not buy bad assets from banks; the market reacted negatively to this news. Many felt this was expected as purchasing assets is more of a challenge and just as many are upset and consider this a flip flop, causing more concern. The main issue is no one really knows how to determine the value of these assets. Even after they were to determine the value once the banks sell these assets they then are required to take a write down, which would further devalue the banks. Paulson has indicated he is more focused now to invest money directly in firms that provide financing to the broader economy.
As for the bailout planned outlined in the summer, the government committed $700 Billion, this is to come in 2 installments of $350 Billion. Of the first installment they have used $290 Billion, the second installment will not come until after the new president is in place and congress will again vote on how to use these funds. The good news is the additional money invested into AIG this week has been interpreted to be a win for Banks as they will now be able to recoup $35 billion in collateral. This will reduce the amount of future write downs the banks would have been required to take if AIG had failed and was not able to deliver on the insurance contracts. Ultimately the sooner the confidence amongst banks is achieved the better for the overall economy as the continued tightening of lending has caused a ripple effect to all consumers and businesses.
So to date we have passed the first cause of uncertainty in regards to the economy with the election of a new president. Regardless of your political affiliation with the election behind us it does provide some clarity as to what steps will be taken. As the market has its own expectations of what each potential president would do to restore confidence knowing who will be president is something that was needed. As for predictions of the market analysts now are expecting the Fed to further cut rates, currently there is 84 percent chance that the U.S. central bank will lower interest rates by 75 basis points to 0.5 percent at its next meeting, compared with a 58 percent probability a week ago. Most analysts feel at this point the FED is going to keep cutting rates until something happens that is positive for economic growth. To date more than $29 trillion has been erased from the value of global equity markets this year and the S&P 500 is down 42 percent as credit losses and write downs neared $950 billion.
Although the possibility of a rate cut seems to be more realistic it does not in turn mean mortgage rates will drop significantly, as the lending institutions are keeping their margins higher and charging a greater premium for money than in the past. So anyway waiting for rates to drop further needs to realize that is not something Wall Street wants to occur, dropping rates by the Fed is simply meant to instill greater flow of cash amongst banks not consumers.
With the value of Homes in Georgia remaining stronger than the national average it is just another fact to that illustrates the benefit of homeownership in GA. (See chart above) Ultimately I still feel strongly that anyone looking to buy; the current market provides a once in a lifetime opportunity with the cost of homes down and borrowing cost somewhat reduced for the time being, action now can save them thousands of dollars later.
As for the bailout planned outlined in the summer, the government committed $700 Billion, this is to come in 2 installments of $350 Billion. Of the first installment they have used $290 Billion, the second installment will not come until after the new president is in place and congress will again vote on how to use these funds. The good news is the additional money invested into AIG this week has been interpreted to be a win for Banks as they will now be able to recoup $35 billion in collateral. This will reduce the amount of future write downs the banks would have been required to take if AIG had failed and was not able to deliver on the insurance contracts. Ultimately the sooner the confidence amongst banks is achieved the better for the overall economy as the continued tightening of lending has caused a ripple effect to all consumers and businesses.
So to date we have passed the first cause of uncertainty in regards to the economy with the election of a new president. Regardless of your political affiliation with the election behind us it does provide some clarity as to what steps will be taken. As the market has its own expectations of what each potential president would do to restore confidence knowing who will be president is something that was needed. As for predictions of the market analysts now are expecting the Fed to further cut rates, currently there is 84 percent chance that the U.S. central bank will lower interest rates by 75 basis points to 0.5 percent at its next meeting, compared with a 58 percent probability a week ago. Most analysts feel at this point the FED is going to keep cutting rates until something happens that is positive for economic growth. To date more than $29 trillion has been erased from the value of global equity markets this year and the S&P 500 is down 42 percent as credit losses and write downs neared $950 billion.
Although the possibility of a rate cut seems to be more realistic it does not in turn mean mortgage rates will drop significantly, as the lending institutions are keeping their margins higher and charging a greater premium for money than in the past. So anyway waiting for rates to drop further needs to realize that is not something Wall Street wants to occur, dropping rates by the Fed is simply meant to instill greater flow of cash amongst banks not consumers.
With the value of Homes in Georgia remaining stronger than the national average it is just another fact to that illustrates the benefit of homeownership in GA. (See chart above) Ultimately I still feel strongly that anyone looking to buy; the current market provides a once in a lifetime opportunity with the cost of homes down and borrowing cost somewhat reduced for the time being, action now can save them thousands of dollars later.
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