The Federal Open Market Committee voted to cut the Fed Funds Rate by one-half percent today.  The benchmark rate now stands at 1.000 percent.

In its press release, the Fed wasted no time addressing the key issue at-hand, stating that economic activity has “slowed markedly”, pointing to three main causes:

1. Consumer spending is falling
2. Business equipment spending is falling
3. Slowing foreign economies are hurting U.S. businesses

Furthermore, the voting FOMC members are wary of an “intensification” of the current financial market turmoil.

The announcement’s 4th paragraph is noteworthy, too.  It lists the plethora of growth-stimulating steps that the Fed has taken so far this year and concludes that credit conditions should improve in time.  It does notes, however, that if markets don’t improve in good time, the committee will “act as needed”.

In the wake of the announcement, stock markets rallied.  Investors liked what the Fed had to say and it drew funds into the stock market from all corners of Wall Street.  Unfortunately for mortgage rate shoppers, one of those corners happened to be the mortgage bond market.

The exodus from bonds caused mortgage rates to rise.

It’s a common misconception that the Federal Reserve controls mortgage rates and today’s market action should help dispel that myth.  As the Fed Funds Rate falls back near its 50-year low, mortgage rates are bumping up against a 3-year high.

Source
Parsing the Fed Statement
The Wall Street Journal Online
October 29, 2008
http://online.wsj.com/internal/mdc/info-fedparse0810.html

Despite turmoil on Wall Street, the housing sector continues to deliver good news.

Last month, led by a 22 percent surge from the West Region, New Home Sales rose 2.7 percent over August.

A “new home” is a newly-built residence, never before lived in.  New homes are usually built and sold by real estate development companies and their respective marketing firms.

The surge in New Home Sales volume is consistent with the other good news we’ve seen from the housing sector.  It marks the 4th positive signal in the last two weeks.

• October 8: Homes under contract to sell surge 7.4 percent
• October 23: Foreclosed homes fall 12 percent in September
• October 24: The supply of “used homes” falls to an 8-month low
• October 27: The supply of new homes falls by 7 percent

However, it can’t be ignored why housing is showing a statistical improvement.  The main causes are two-fold:

1. Banks are getting better about selling foreclosed homes
2. Builders are keen to dump their excess inventory

Both of these factors drive down home sales prices nationwide which, in turn, draws value-seeking home buyers back to the market.  In addition, because the number of active sellers dwarfs the number of active buyers, today’s home seekers enjoy a tremendous amount of negotiation leverage, making real estate even more attractive.

But, as with everything in business, markets seek balance.  As home supplies dwindle, buyers’ ability to negotiate sales prices and closing costs will fall.  It’s Supply and Demand — as supplies drop, relative demand rises, and prices rise with it.

In every American neighborhood, homes that are priced “right” are selling quickly.  And now that banks and builders have figured out the formula, more homes are going under contract than at any time since 2007.

Much of the current economic climate is being blamed on housing.  If the data is accurate, though, we can infer that the climate may not last much longer.

Tom beat me to the post about the increased sales numbers for September. The news that the market could possibly be starting its way up is fantastic . But do you honestly understand what happened in the first place???

I’ll be honest, I only got less than half it. I understood the making of bad loans led to things going south, but now I know that it really started with the commercial paper markets and credit default swaps. If right now you’re saying, “huh?” - don’t sweat it. I’d guess in good company of folks who don’t understand these terms.

 The good news is that there’s a great podcast from the public radio show, “This American Life” that explains the whole enchilada in way we all can understand. An hour on the elliptical machine wearing my headphones and suddenly I get it - I mean, I really get it.

The specific show called “Another Frightening Hour about the Economy” can be accessed here. It’s the second in a series of economy shows starting with “The Giant Pool of Money” (I personally liked the second show better) that has even gotten the attention of the New York Times. 

Take a listen and let me know what you think.

Statistics are what you make of them, but sometimes, they can provide good perspective.

For example, from its peak in 2005 to its trough in late-2007, the number of “used” homes sold nationwide plunged.

• In 2005: Roughly 7 million homes sold annually
• In 2007: Roughly 5 million homes sold annually

Through all of 2008, though, Existing Home Sales volume has been essentially flat.  Some months up, some months down, but always hovering near the 5 million unit mark.

The data from September is no different. 

For the 13th consecutive month, the number of home resales nationwide straddled the 5 million benchmark, clocking in at 5.18 million units.  This tells us that everyday Americans are still buying and selling real estate at a fairly steady clip — despite what the news keeps telling us.

Versus August, September sales volume grew by 5.5 percent.

Now, couple this two other data points and we can see that the housing market is showing multiple signs of strength (compared to where it has been the past two years):

1. The national home supply is now down to 9.9 months
2. The number of homes under contract is up 7.4 percent

Again, though, statistics are what you make of them.  Just as there are positive signals about real estate, there are negative ones, too.  The credit markets are one example of that.   

But, either way, with a full year of stable sales volume behind us and stories of recovery in beat-up markets like California, we can’t ignore the idea that housing may be done trolling its bottom.

It takes willing buyers and willing sellers to turn a market around.  It appears that housing may have both.

(Image courtesy: The Wall Street Journal Online)

Remember  just a couple years ago when the Home Depot was so freakishly busy that you couldn’t even get arrested there if you tried? A friend who used to work there admitted that associates would hide from customers and even take off their apron while working on shelves just to get some peace.

Well now HD, and all their big box brethren, are all but swooping and falling over you. The last time I was there, three people asked if they could help me find my new toilet flap. It was dreamy. (I am a simple woman, my dreams are small.)

And more than ever they’re trying to get the gals in. The Home Depot has long offered classes, but now they’re doing more woman-only sessions.  Tonight the North East Minnapolis Home Depot at the Quarry is offering a “Do-it-Herself” class on winterizing your home.  You can read more about it here. Maybe they didn’t think they could talking about caulking in mixed company.

I think this is pretty smart. It grabs the person of the family who often is in charge of the budget and shows them its really not about boys and their toys.  And more than any year, we need to be looking at tightening up our homes so a winterizing class is perfect.

If you want to learn more about why you should get an energy audit, I highly encourage you to read this great article by my friend Brent at The Family Handyman. It has many great tips for saving money this winter.

And about the house I saw the other day?  Sadly, I really liked it so now we’re toying with how we could finance it. More to come.  Honestly, the whole subject makes my head hurt.

I can’t believe I’m writing this - but we’re going to look at a house tonight. Not that we’re unhappy with our rental. We love living here in the rectory, we really do.

While the thought of moving makes me want to hurl, I can’t help but consider this buyers’ market.

In fact, I can’t wait for the life size Nativity scene to be set up on our front lawn. The opportunities for Christmas card pictures are a plenty. We could play, “Where’s the Amundsens?” as we hide among the wise men and the camels, or switch me out with Mary with the caption, “I know Lucie Amundsen and she’s no Virgin…,” or attempt to stuff Milo into the manger…

But the fact is, we don’t own this lovely little house nor could we sign a year lease - so it makes a Momma nervous at times. Ideally we’d be able to buy the home we’re in for a price we could afford - so one could argue that a little comparison shopping would be a good thing.

And this very well may be the best buyers market in our adult lives and we can’t help ourselves from taking a serious look and crunching some numbers.

Do we have a concern about getting a loan? Well, yes and no. It’s not like we have $30K lying around right now with our own home unsold (yet thankfully rented.) But we could, I suppose, leverage that home to make it happen or see what can be done.

I’ll keep you posted…

Private Mortgage Insurance (PMI) is a mortgage lender’s insurance policy against highly-leveraged homeowners.  It’s typically required when homeowner equity is less than 20 percent at the time of closing.

With PMI defaults up 40 percent over last year, though, private mortgage insurers are taking big losses.

They’re also taking outsized steps to prevent additional claims going forward and that is bad news for low-equity homeowners and home buyers.

The first PMI change new, higher insurance rates.

Like home insurers that adjust premiums after a worse-than-expected storm season, PMI insurers are raising mortgage insurance rates for all homeowners, regardless of credit history.  The higher premiums are meant to offset the higher losses.

And, the second change is that some PMI firms are discontinuing coverage for “high-risk” transaction types.  This includes purchases of non-owner occupied properties, and cash out refinances above 85 percent loan-to-value.

Both changes, however, point to similar conclusion about home loans: Home equity is increasingly important for today’s homeowner. 

PMI rates are higher than they were six months ago and the rising default rates makes it likely that rates will rise again soon.  As PMI rates increase, so does the cost of homeownership for people whose lenders require it.

It’s October and its evident that the quality of daylight has shifted. The landscape isn’t bleached out in the summer sun any longer and the colors have taken on those deep and saturated hues of autumn.  I really groove on fall.

So what’s a girl to do?  In the Twin Cities there’s a bevy of choices, but here a few to highlight.

Jeanne Kretchmer will be doing her “Everything You Ever Wanted to Know about Ghosts but were Afraid to Ask” event at the John H. Stevens House in Minnehaha Park TONIGHT.  You know that little white house in the Park by Hiawatha Ave? Reservations, along with $7, are required.  Here’s the number: 612.722.2220

If you miss it you can catch Rick Hagen, founder of Paranormal Investigations at the same location on Sunday, October 26 at 2pm.  Admission to the seminar is $10 to benefit the Stevens House. Reservations are required: 612 827-0138

Ok- so not into paranormal?

There’s still time to hit the Farmer’s Markets. I did talk about the Midtown Farmer’s Market early last spring, so now I’ll head to St. Paul and talk up their market which is chock full o’ fall bounty - like butternut squash and other makings for soup. In fact, like their Minneapolis sister, the market goes all winter long on Saturdays.

While there you can visit local entrepreneur, Lori Karis, who has taken her 20-years making organic baby food as a nanny to the public as Sweet Cheeks Baby Food. I’m a big fan of the small business so you go Lori!

And if I’m gonna mention Sweet Cheeks, I also need to talk about Aunt Else’s Aebleskiver at the Mill City Farmer’s Market.

This is the last weekend to grab some of these Danish hot apple treats so don’t miss out. Here’s a picture of my friend Chad cranking some out. I’m not sure why I know all these creative peeps - just lucky I guess.

As the stock market dips then jumps then dips again, it’s important to remember that markets are unpredictable and nobody knows what will happen tomorrow.

Unfortunately, that doesn’t stop the analysts from trying.

An obvious example comes from May of this year.   As the price of oil crossed $120 per barrel on its way to an all-time high of $147, a Goldman Sachs analyst was quoted as saying that $200 oil was “likely”. 

It seemed like a logical conclusion at the time.

Today, though, just five months after the prediction, the analyst’s “likely” scenario looks downright laughable.  Oil is off by more than 40 percent since that day.  And there’s hundreds of examples just like this, all around us. 

Every day, economic experts and analysts are on television, telling us what’s going to happen in the future:

• They tell us when housing prices will reach a bottom
• They tell us when stock markets will rebound for good
• They tell us what the economy will do over the next 12 months

But none of them operate with the proverbial crystal ball — it’s all on “gut”.

Another example is from today’s CNNMoney.com.  In the wake of the government’s banking response, a mortgage analyst predicts 7 percent interest rates over the next six months  This would represent a 1.5 percent from the recent lows.

The rate prediction may be accurate, or it may not.  We won’t know for another six months.  But what we know today, though, is that mortgage rates are all over the place — just like the stock market.  One day up, another day down.  And nobody knows what they’ll do tomorrow.

Predicting the future has always been an inexact science but that won’t stop the experts from trying.  And the experts are wrong as often as anybody else.

I  can’t think of something I treasure much more than the urban dog parks.  It’s very cool to hit the gate, unleash the dog and watch him run & romp like he’s meant to. And for reasons I can’t explain (but Ceasar Milan can) there seems to be hardly any negative interactions among the 4-pawed visitors.

Of course, there’s always the “who’s top dog” contest, which seems to be settled inside 5 minutes. For us it usually ends with our Rottweiler mix being face-humped. It’s more humiliating for us owners than him.

Minneapolis has five of these off-leash locations - including Columbia Park, Franklin Terrance, Lake of the Isles, Minnehaha Park and Loring Park. For my money, the Minnehaha Park one off of Hiawatha is about the most beautiful parks in the city - dog park or not. It’s a walk in the woods by the Mississippi that can make you forget that you live in an urban jungle.

If you’re a Minneapolis resident it’s $35 to set your dog up and $60 for non-residents. Second dogs get in a bit cheaper. You can start the licence process here.

Of course, it’s not just Minneapolis dogs having all the fun, St. Louis Park has its own dog park, too.

Visit www.dogfriendly.com for a list of dog friendly parks and hotels in the Twin Cities area and spots around the country.