Spend, spend spend

I had missed this email back in November but click HERE for an excellent read on why the government's SPENDING is killing our country. Well reasoned and supported...

Newt Gingrich's message for Labor Day

Read this article! There was not a lot of press about Congressman Boehner's call to fire President Obama's Economic team, but this article makes it clear that it's time for some real CHANGE in D.C.!

(Full text of Boehner's speech here)

"Southeast Economy Improved in March & April"

So the Fed's "Beige Book" report noted that the Southeast's economy saw some improvement in March and April. Specifically, retailers saw higher sales, increased traffic and that's a big plus as we all know that retail sales contribute around 70% of our economy. Car sales even rose a bit, despite Toyota's recall woes (offset by a big sales push) and Chrysler's continued slump. Homebuilders should be a bit more positive as housing starts have increased over the first quarter (yes, there was a small dip in March, but that was due to a large upward revision for February). Existing home sales have picked up a bit, but mainly in the lower priced markets (sub-$300K) due to the 1st-time homebuyer credit. As noted several times in the past, the $6,500 credit was a non-event as a) people aren't truly aware of it and b) the 5-year residency provision was too restrictive. Prices are still a bit lower due to all the foreclosures out there (expect more in 2010 and 2011 as ARM's continue to re-set). While there are still hurdles to obtaining home financing (tight underwriting and low appraisals) I keep hearing that common sense MAY actually be returning and lenders are having less trouble making loans (I even heard that there is a local company actually doing SECOND mortgages again, the horror!). We'll see how that sorts out; hopefully interest in homes won't fall off a cliff after 4/30/10 when the tax credits expire (for good). Georgia reported higher unemployment (a record 10.6%) which has outpaced the National average for 30 months. Labor Secretary Michael Thurmond notes that there are signs of growth, however, and while we may lose additional jobs in the short-term, a recovery may finally gain traction in Georgia. Finally, the FDIC extended protection for large deposits (Transaction Account Guarantee (TAG) Program, which guarantees non-interest-bearing deposits greater than $250,000, not that it affects me individually!) which will help smaller banks keep high dollar deposits in-house. Hopefully we won't see any new bank closures, but don't bet on it... Have a great weekend! Bo

Time is up! (and time to move to ATL!)

All too often you hear the phrase "For A Limited Time" tossed out in marketing. As noted in last month's email, time may be running out for these incredibly low rates due to TODAY's end of the Fed's $1.25T (yes, Trillion) program to purchase mortgage-backed securities (MBS). The program provided liquidity for Freddie and Fannie, keeping rates low and reducing financing costs. Low point? 4.71% for a 30-year fixed in December! But "what now" since the Fed is ending this program? I predicted a larger jump in rates but I have to retract based on what I've recently read (either way I hope rates remain low!). Estimates from Freddie/Fannie expect a rise of less than a quarter point in the next 3 months (a rise of about $30/month payment on a $250K loan). Why so 'low'? Right now the investment 'spread' for US Treasuries is low but higher for MBS so they are attractive to money managers, banks and pension funds (I also read that China is not buying as many Treasuries so be aware that the USA could face higher interest rates to finance our ever-increasing budget deficits, but I digress). In essence, the private industry players are stepping in to fill the void left by the Fed so rates should remain lower, though the (estimated) average will be just over 5% and under 5.25% (for reference, the average for the past decade was 6.2%). Note-the Fed is poised to 'jump back in the market' if there is a significant 'run-up' in rates.
So rates should be 'okay' but are we out of the woods yet? Well, we don't know what will happen after April 30th when the tax credits expire (actually, July 1 will be the true barometer as you MUST be under contract by 4/30 and you MUST close by 6/30 to get the final tax credit). Robert Shiller (of the S&P/Case-Shiller index) said "You don't make addicts go cold turkey. The credit interferes with the market in an arbitrary way, but ending it now would be psychologically powerful. People will be in a bad mood about buying a house." All I can say, try being a seller! Talk about a bad mood... or why not try to buy a short-sale? THAT'S truly 'bad mood' material!
Let's talk about ATL now. No less than the New York Times (albeit in blog form) noted "Don't count Atlanta out." Harvard Economics Professor Edward L. Glaeser notes that ATL has had its ups (#2 in population growth of 1.13M people from 2000-2008) and downs (annual building permits dropped like a rock from 2005-2009, highest of any other metropolitan area) but we have many things going for us. Click on the link to read the article but John Adams has a companion article that sums up his 3 maj or factors for our future success: ATL is dominant in the region, with no real rivals; we have a 'business-friendly' political environment; we have a highly skilled population (nearly 43% of adults have college degrees vs. 27% nationwide). Not only that, a recent KPMG study ranked ATL the second most cost-competitive 'large city'. They used a matrix of 26 cost components such as labor, taxes, real estate and utilities as it relates to 17 industries based on a 10-year time period. Tampa was #1, with a cost index of 96.0 (100.0 being the national baseline) and ATL was 96.3. Our ranking was based on our competitive business costs (office leasing, transportation, labor, employee benefits and corporate tax rate). Miami, Baltimore, and Dallas round out the top 5. LA, NYC and SF were the three most expensive.
SO tell your friends it's time to relocate to ATL! Buy now, save now, and pop some bubbly along the way!

Rates at 7.5% by the end of 2010?

Read this article to see what I'm referencing. Nothing new that I haven't said before but just further thoughts that you need to make that loan decision NOW before rates go up! I hope that I'm wrong, but it's highly possible that this will happen. Happy Monday, eh?

How Interest Rates Move Video

Watch this video to learn "How Interest Rates Move". It's 7 minutes long but it gives you a great understanding of how rates work AND notes why rates will be jumping up soon AND why you want to get into the refinance process NOW or you'll be sorry! Don't delay, watch this as soon as possible! Cheers, Bo

Uh-oh... The Economy stumbles a bit...

Unemployment claims rose last week and inflation jumped more than forecast in January. Yes, there are still positive news items (manufacturing is up, cars are selling, new home permits up slightly and pricing stabilizing) but the core issue currently is the job situation (a reminder to those 'in charge'--it has ALWAYS been about jobs--NOT our health care). Why is this important? If inflation keeps rising, how does the Fed combat that? They raise interest rates! What will KILL home sales? Rising interest rates! (right Mr. Carter?) What else? Well, the Fed has been more or less buying loans (in simplistic terms). At the end of March, this will end, so we can see rates hike up based on the fact that it will be more difficult to obtain funds. This can also hurt home sales and refinances. I will expand on this soon, but suffice it to say that we are nearing a 'perfect storm' environment for home sales: the tax credit will expire soon (must be under contract by the end of March); the Fed will need to raise interest rates to combat inflation (prediction-by Summer); the Fed will stop shoring up the mortgage market at the end of March. bottom line-if you are on the fence, BUY OR REFI NOW!

As for health care, READ THIS from the AJC--I wish our politicians would....

Quick take on the economy

I have different items to work on today so here's my economics report for the current period: unemployment is still dragging down our country. In Georgia, it's really not going to be much better in 2010 as so many of our jobs were lost due to the housing implosion. SO housing is still going to drive this recovery--or not. If you have a mortgage in the mid-5's or 6% (or an adjustable that can 're-set' in the next year or so), you need to think about refinancing by Summer. Ditto for home purchases as there is not much time left on the homebuyer's tax credit. Housing starts are up in the South and competition for homes (new or 'used') will pick up again soon so act now before the crowds start bidding up prices. Act now before inflation kicks in and rates go back up (take a look at both the PPI and CPI if you need confirmation on that). Act now to get out from under the burden of rent!

That dreaded "I" word...

Yes, INFLATION. Anyone alive in the Jimmy Carter era just visibly shuddered (I know I did)... What about inflation? Well, the Fed has kept rates incredibly (artificially?) low in order to spur on the "recovery" (again in quotes due to the low rate of job creation) and certain sectors have experienced rising costs. The Producer Price Index (PPI) is up, which would typically bring us a rate increase--ditto for consumer goods and energy pricing. SO if Inflation is coming (or is already here as some say) we would typically see the Fed raising rates after this week's meeting. What's that mean to you and me? Well, things seem to be improving relatively quickly, except for jobs, though there was a small drop in November's unemployment numbers. While energy prices are up the price of oil and gasoline has dropped recently. In essence there are a lot of positive things happening (even increased consumer spending was reported!) but there is still a 'wait and see' feel to our nation. I don't think anyone will feel comfortable while jobs are still getting slashed (which will continue into 2010 per many Economists) and until this health care fiasco is sorted out (put it this way--if you were a small business owner, would you be hiring right now with the uncertainty of being in business with the possible changes on the horizon?). Likewise, we have a long way to go despite all the 'dog and pony' shows going on about banks. There are few modifications taking place and the ones that are proceeding aren't helping to stop the flow of foreclosures. And to add to the misery, we STILL have at least a year of adjustable rate mortgages 're-setting' (possibly two) due to the large numbers of 5/1 ARM refinances that happened... well, just over 5 years ago. So what of inflation? If things keep improving and (as noted in several postings) if we continue 'printing money' the Fed will HAVE to raise rates. Will the struggling economy be able to take that shot? As always, time will tell :) Good luck, God Bless, Be safe... Bo

Quote of the Week!

While I am not fully 'educated' on whether or not I like or dislike Treasury Secretary Tim Geithner (I definitely hate the fact that big O couldn't find someone who didn't owe back taxes for the post, however) I must admit that I LOVED the following interchange reported by the Wall Street Journal last Friday (from the Joint Economic Committee):

REP. KEVIN BRADY (R-TX) "The public has lost all confidence in your ability to do the job."

TREAS. SEC. GEITHNER: "What I can't take responsibility is for the legacy of crises you've bequeathed this country."

BO WAGNER: "DUH!"

I concur Mr. Geithner, you hit the nail on the head (and nailed Mr. Brady in the process). I guess I'll go harsh this morning: I condemn Congress. I blame Congress. I am unhappy with Congress. For too long we have had these people running our country into the ground. BOTH parties. It's time for this mess to stop. It's time for TERM LIMITS. Elect representatives based on what messages they 'sell' us during elections (e.g. do we agree with their point of view? Then send them to DC for a short time to accomplish that goal and can them if they don't do what they promised). House of Representatives? 3 terms (that's six years). Senate? 2 terms (twelve years). I am unsure how I'd feel about a Representative 'graduating up' to the Senate (giving them a potential 18 year 'reign' on our nickel). I just can't see any other options to get these people to do what we want them to do--so that our "government of the people, by the people, for the people shall not perish from the earth."

We are at a true crossroads in our country. I have made my own choices in my life and I have benefited or been 'punished' for them. It is not the role of the government to step in and save me (or further punish me) for my choices. You cannot legislate change; there is no moral obligation (or requirement) for the government to take money from me and give it to someone else. I have my own issues and 'causes' to handle--it's not my job to be someone else's guardian--except for my wife, kids, dogs and family. My choices. Again, read John Galt's speech from Atlas Shrugged and you'll understand (for a highly condensed version, click here).

Lest you think I am a complete selfish monster, I do want to point out that I am a charitable person--however, I give to what I support-not what the government 'thinks' I should support. My 2 cents as always... Happy Monday, eh? : )

(For one important group I support, check out The Rotary Foundation and consider supporting them...)

Current Outlook

The Recession Is Over!

Oh, really? Ask one of the thousands of unemployed people and I'd bet you'll hear a different answer. Yes, home sales (and prices) have risen a bit and yes, retail sales have risen a bit, BUT we need jobs. (I could digress about wasting time with health care reform vs. our real problems (It's the Economy, Stupid!) but this is not to be a politicized rant today).

This week's unemployment figures didn't truly rise (on a nationalized level, but in GA it actually went UP) but the numbers are higher than a level that indicates the economy is adding jobs. New unemployment claims have fallen around 22% since the Spring, but who is hiring? With people losing jobs and with those people not FINDING jobs, foreclosures could be the next flood to hit. We have been hit with all the adjustable-rate and/or subprime loan foreclosures in prior years but we are seeing many more fixed rate 'plain vanilla' loans going to the courthouse steps of late. To turn the tide, we need to see weekly claims to fall to higher than 400,000 for several weeks! Unemployment benefits were extended, but this lifeline will run out in January unless we see another extension from Congress. Some members of "The Fed" have noted that our recovery will resemble an "L" with a gradual upward tilt from the base (which is better than the L pointing down!). Small businesses typically contribute about a third of net job growth in the last 2 economic recoveries--not this time! Small businesses have accounted for about 45% of net job losses through the end of 2008, so it looks like we are in for a long fight...

On a positive note, the federal tax credit for 1st-time home buyers was extended and 'move up' buyers were given their own credit of $6,500 as well. HOWEVER, I am very disappointed in that credit as it is restricted to people who have lived in their home for 5 of the last 8 years. Let's cut to the chase-I am 44 and I am finally 'stable' (well, at least as it relates to moving!) and I don't plan to move any time soon. I have never lived in a home for over 5 years so if I was looking to move (I'm not) I couldn't get the tax credit. I think a more reasonable figure would have been a 3-year restriction but no one called for my opinion...

If we could loosen credit to credit-worthy borrowers AND get back to common sense underwriting we could get out of this mess faster. As I keep saying, this all started with Housing and Housing will get us out of this mess. We need to repeal the Home Valuation Code of Conduct as well so we can go back to using quality appraisals vs. whomever happens to be cheapest, but again, that's a topic for another day.

Finally, I read that Atlanta's housing inventory began to deplete in the 3rd quarter and housing starts actually ROSE. The quote (from Metrostudy) that really rang true for me was this: "We do not have an oversupply problem, we have a demand problem". This is what I am referencing above-if people could sell their homes they could move into a new home. It's like a 'reverse' domino effect-nothing is falling into place so that the next domino can fall. No credit = no home sale. No home sale = no seller becoming buyer. Hopefully we'll see some positive movement sooner rather than later!