The Concern of Deflation

The Fed Minutes from the October meeting were released yesterday, and the hot topic was the concern over deflation.  This news caused stocks to tumble and investors to pour their money into the security of Treasury Notes.

Generally, the Fed has two jobs: the first is to promote economic growth and the second is to combat inflation.

And now deflation has come into play … Deflation occurs when prices drop, generally on account of the money supply and credit.  So what’s the problem with falling prices?  Well, it leads to declining employment because companies scale back on production and salaries.

In times of deflation, the Fed usually cuts interest rates, but these are unprecedented times, especially when you consider that the Fed has been cutting rates steadily since September 2007, a period that has been inflationary.  Times of deflation also tend to bring lower mortgage interest rates as people take their money out of risky stocks and pour them into stable bonds.

Published in:  on November 20, 2008 at 9:25 am Leave a Comment

Economic News Update

The big news of late has been the potential government bailout of the Detroit Three: General Motors, Ford and Chrysler. Because of poor sales, our domestic auto makers are running out of cash and can’t keep up with costs. The concern is that if the government doesn’t bail them out, the result will be a loss of a staggering 3 million U.S. jobs.

Kiplinger, an excellent source for personal finance questions and economic forecasts, has forecasted the following:

  • Unemployment will rise to 8% in 2009
  • GDP growth will slow down to 0%
  • Inflation will decline in the coming months
  • 2009 will see slight increases in housing sales

Kiplinger also states that President-elect Barack Obama’s tax hikes on high-income taxpayers will be delayed until 2010 at the earliest.

Published in:  on November 17, 2008 at 4:52 pm Leave a Comment

Retailers Filing for Bankruptcy: Use Your Gift Cards!

Beware of giving and receiving gift cards this holiday season.

If you have a gift card or store credit with a retailer that has filed for bankruptcy, you can be pretty assured that you won’t ever see that money. You could try standing in line behind creditors in bankruptcy court, but personally, I wouldn’t waste my time.

With Circuit City being the most recent retailer to file for bankruptcy, the number of retailers to do so are increasing.  Six retailers filed for bankruptcy in 2006, seven retailers in 2007 and this year alone has seen 17 retailers file.

If you have gift cards lying around at stores that you’re unsure of lasting through this economic downturn, I’d go spend them!

Published in:  on November 12, 2008 at 7:54 pm Leave a Comment

Loan Limits Change

2009 Conforming loan limits remain the same:

1-Unit: $417,000

2-Unit: $533,850

3-Unit: $645,300

4-Unit: $801,950

2009 Conforming-Jumbo loan limits for 1-Unit homes are effective January 1, 2009.

Counties with the highest limit of $625,500:

Alameda, Contra Costa, Los Angeles, Marin, Orange, San Benito, San Francisco, San Mateo, Santa Clara and Santa Cruz

There’s still time to lock in with the current $729,750 maximum, but the clock is ticking!

Published in:  on November 11, 2008 at 12:45 pm Leave a Comment

*THIS* is Why a Good Credit Score is so Important:

From one day to the next, hits and improvements on credit score brackets got much stricter. Hits for lower credit scores (anything below 740) are bracketed by increments of 20 points starting with a 620 FICO.

Based on today’s interest rates (which are really good compared to how rates have trended lately), I was shocked to quote a client with a FICO score of 695 a 30 Year Fixed interest rate of 6.75%, no points (APR 6.824%).

In this very same loan scenario, if her FICO was 740 and above, her interest rate quote would be 6.25%, no points (APR 6.321%). At a loan amount of $400,000, this is a significant monthly savings of $131.52.

This only serves as a reminder that excellent credit is vital in today’s lending market. Please let me know if you have any questions on your credit and your situation.

Published in:  on November 6, 2008 at 11:37 am Leave a Comment

Temporary Conforming Loan Limits are Expiring Sooner Than Expected

The temporary conforming loan limit of $729,750 in high-cost counties was set to expire at the end of the year, but banks are pulling back on that and requiring all loans at this loan amount range to close by December 1st – NO exceptions.

With rates having dropped yesterday, some people in the $625,500 – $729,750 loan amount range are taking advantage of the limited opportunity. But because a 30 day lock period will take us past the December 1st deadline, I’m locking my clients on a 15 day lock period and will pay to extend the lock period by another 7 days. (Although not impossible to close in 15 days, sometimes it can be tight).

What this all means is that we’ll be in limbo for the month of December or until banks decide what to do and when to implement the new conforming loan limit of $625,500 for January 2009. After December 1st, I don’t expect any activity in the refi or purchase market for those requiring loans above the true conforming limit, which is $417,000.

Published in:  on November 5, 2008 at 12:16 pm Leave a Comment

Market Talk

The market has swung wildly since last week. Fed Day last Wednesday brought the expected .5% rate cut, bringing the Fed Funds Rate (the rate at which banks lend money to each other) to 1.0%. As consumers, this will affect and decrease Prime Rate.

Rates saw great improvements today with multiple changes for the better, bringing many loan programs and rates to the low 6% range.

And finally, a talking point on economic recessions: Although many people feel that we are already in the midst of a recession, the technical definition of one is two consecutive quarters of negative GDP. 3rd Quarter GDP numbers just came out and showed negative growth of -0.3%. (2nd Quarter GDP had risen 2.8%). So technically, we’re not in a recession, although I always found it amusing that we don’t know we’re in one until the numbers come out after the fact. Regardless, this is the first true report that validates the possibility of entering into a recession.

Published in:  on November 4, 2008 at 3:28 pm Leave a Comment