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Fed Cuts Interest Rate to Historic Low - Details

by Alexandra Zega


RISMEDIA, Dec. 18, 2008-(MCT)-By cutting its benchmark lending rate to historic lows Tuesday and promising to combat the U.S. recession head-on and aggressively, the Federal Reserve served notice that more unconventional actions probably are ahead as it fights to reverse the nation’s economic woes.

The Fed pushed its federal funds rate from an already low 1% to a target range of 0 to 0.25%. This marks the lowest point ever for this target rate, which banks charge each other for overnight loans. The funds rate serves as a benchmark for a wide range of loans in the U.S. economy.

The Fed’s rate cut was larger than expected, and highly unusual, as the Fed usually targets a specific rate instead of a range. The move highlighted the Fed’s determination to act aggressively along with the reality that the U.S. recession is deepening rapidly.

Evidence of that came from the Commerce Department, which reported that housing starts fell 19% in November and 47% on a year-over-year basis. New residential construction has fallen to levels not seen in almost half a century.

On top of grim retail sales, mounting job losses and sagging exports, the U.S. economy is struggling on many fronts.

In theory, the Fed’s action should reduce the cost of borrowing for consumers and businesses, since the prime rate-what banks charge their best customers-moves in tandem with the federal funds rate.

The prime rate typically influences rates for car loans, student loans, credit cards and other debt. With Tuesday’s cut, the prime rate is expected to fall to 3.0 to 3.25% from 4%.

However, despite the attractive rates, banks aren’t lending to most consumers and businesses. Weak financial institutions continue to hoard cash and build their balance sheets, with little appetite for risk in new loans. That’s worsening the economic downturn, especially since it hurts consumers, who drive almost two-thirds of U.S. economic activity.

In a statement, the rate-setting Federal Open Market Committee said: “The outlook for economic activity has weakened further … the Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability.”

The vow to deploy “all available tools” sparked a rally on Wall Street. The Dow Jones industrial average shot up 359.61 points to close at 8924.14, while the S&P 500 finished up 44.61 points to 913.18 and the Nasdaq added 81.55 points to end the day at 1589.89.

A senior Fed official, briefing reporters late Thursday on the condition of anonymity in order to speak freely, said that a rate range was chosen because the real federal funds rate-what banks actually charge-has been well below the Fed’s target in recent months.

The Fed’s statement said that “weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.”

The Fed has little room left to maneuver on interest-rate policy now and will use other tools.

“They are saying that they have unlimited arrows. As the central bank of the United States, it is the only entity that can write checks on itself without limit, and that’s a very powerful weapon the Fed has against the downturn,” said Marvin Goodfriend, a former research director at the Federal Reserve Bank of Richmond who’s now an economics professor at Carnegie Mellon University in Pittsburgh. “It won’t work immediately, but if it is used aggressively, it will work.”

Chief among those other tools is to keep lending aggressively; the Fed’s balance sheet already has gone from about $800 billion to $2.2 trillion as it pulls out all the stops to confront the worst financial crisis since the Great Depression.

Fed Chairman Ben Bernanke next can scale up existing Fed lending facilities or create new ones, Goodfriend said. The Fed statement said that the central bank was weighing the possibility of purchasing long-term Treasury bonds, which would drive down their yield and make other investments such as corporate and municipal bonds more attractive.

“The Fed did it before in the 1940s and it could do it again,” said Vincent Reinhart, a former chief economist of the Fed’s rate-setting body who’s now a scholar at the American Enterprise Institute, a conservative policy institute in Washington.

The Fed’s statement also said that it will extend credit to households and small businesses early next year. Other experts think that the Fed will increase its purchases of troubled assets to unclog credit markets.

“The Fed’s next step is to ramp up its purchases of various financial securities to bring down borrowing costs to households and businesses,” said Mark Zandi, the chief economist for forecaster Moody’s in West Chester, Pa.

The Fed already has become the buyer of last resort for financial products that aren’t moving in today’s frozen credit markets. It’s bypassed banks and is purchasing short-term promissory notes issued by big U.S. corporations, called commercial paper. It’s also announced plans to buy pooled car loans, student loans and credit card debt, collectively called asset-backed securities.

In another creative step to boost the housing market, the central bank also has been purchasing pooled mortgages-called mortgage-backed securities-and debt issued by Fannie Mae and Freddie Mac, the mortgage finance giants that the government seized in September. The senior Fed official said that efforts to purchase mortgages backed by Fannie Mae and Freddie Mac were being ramped up.

The Fed will take additional aggressive steps along those lines in the weeks and months ahead, Zandi predicted.

“They will soon be buying long-term Treasury bonds and will then branch out to high-grade corporate bonds, private-label mortgage securities, asset-backed securities and, if conditions get particularly bad, corporate equity,” he said. “The Fed has the ability to purchase just about anything, and they will do so if they think it will help unfreeze credit markets.”

President-elect Barack Obama noted Tuesday during a Chicago news conference that the Fed has cut interest rates almost as low as possible. That makes it “critical that the other branches of government step up” and work to stimulate the economy as well, Obama said, underscoring his determination to push a massive stimulus program next month upon taking office.

“Look, we are going through the toughest time economically since the Great Depression, and it’s going to be tough,” Obama said. He reiterated that his program will save or create 2.5 million jobs and will work to spur an early rebound and long-term investments in a stronger economic foundation.

The Fed’s statement didn’t mention aid to Detroit’s Big Three automakers, but Treasury Secretary Henry Paulson did in an interview on CNBC. He said that the Treasury was studying how best to provide the Big Three with a bridge loan that would sustain them in the short term and help them restructure toward long-term viability.

“We want to do it right,” Paulson said, adding that no one wants to see the consequences of a Big Three failure in the current economic circumstances. Up to 3 million jobs could hang in the balance, analysts say.

The Fed got a bit of good news Tuesday before its announcement, when the Bureau of Labor Statistics reported that inflation fell in November. The BLS said that consumer prices fell 1.7%, the second straight month with a record decline in inflation.

On a year-over-year basis, consumer inflation rose 1.1% from November 2007 to last month.



© By Kevin G. Hall 2008, McClatchy-Tribune Information Services.

Curb Appeal Matters Now More Than Ever, Say Realtors

by Alexandra Zega

RISMEDIA, Dec. 4, 2008-For the second year in a row, Realtors® report that exterior remodeling projects return the most money as a percentage of cost, as detailed in the 2008 Remodeling Cost vs. Value Report.

On a national level, wood deck additions and all types of siding replacements - upscale fiber cement, midrange vinyl, and upscale foam-backed vinyl - returned more than 80% of project costs upon resale. Of these, the most profitable project was upscale fiber cement siding, which recouped 86.7% of costs, followed by wood decks at 81.8%, midrange vinyl siding at 80.7%, and upscale foam-backed vinyl siding at 80.4%.

“Because today’s buyers have much more to choose from in the way of inventory, any home for sale must make a positive first impression,” said National Association of Realtors® President Charles McMillan. “As a trusted source for real estate information, Realtors® understand what attracts and motivates their buyer clients, which is why the results of this year’s Cost vs. Value report underscore the importance of curb appeal in the buyer’s eye.”

The 2008 Remodeling Cost vs. Value Report compares construction costs with resale values for 30 midrange and upscale remodeling projects comprising additions, remodels and replacements in 79 markets across the country, expanding from 60 markets last year. Data are grouped into nine U.S. regions, following the divisions established by the U.S. Census Bureau. This is the 11th consecutive year that the report, which is produced by Hanley Wood, LLC, was completed in cooperation with REALTOR Magazine, as Realtors provided their insight into local markets and buyer home preferences within those markets.

In addition to wood decks and siding, window replacements and kitchen remodels also returned a relatively high percentage of remodeling costs on a national basis. All types of window replacements - upscale and midrange wood and upscale and midscale vinyl - returned more than 76% of costs. A major midrange kitchen remodel returned 76.0% of project costs, while a minor midrange kitchen remodel returned 79.5% of costs.

On a national level, bathroom remodels, while still a relatively good investment, do not return as high a percentage as in previous years. A midrange bathroom remodel was estimated to return 74.4% on resale, comparable to a midrange attic-to-bedroom conversion, at 73.6% of costs recouped, and a midrange basement remodel, at 72.7% of costs recouped.

As in last year’s report, the least profitable remodeling projects in terms of resale value were home office remodels, sunroom additions, and back-up power generators, returning only 54.4%, 56.6%, and 57.1%, respectively, of project costs.

Although most regions followed national trends, the regions that consistently were estimated to return a higher percentage of remodeling costs upon resale were the Pacific region of Alaska, California, Hawaii, Oregon and Washington; the West South Central region of Arkansas, Louisiana, Oklahoma, and Texas; the East South Central region of Alabama, Kentucky, Mississippi and Tennessee; and the South Atlantic region of the District of Columbia, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia and West Virginia.

The regions that generally returned the lowest percentage of costs were New England (Connecticut, Massachusetts, Maine, New Hampshire, Rhode Island, and Vermont), East North Central (Illinois, Indiana, Michigan, Ohio and Wisconsin), West North Central (Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota), and Middle Atlantic (New York and Pennsylvania).

McMillan explained that the resale value of any given remodeling project depends on a variety of factors. “A home’s overall condition, availability and condition of surrounding properties, location, and regional economic climate are all factors that will influence the value of any remodeling project,” he said. “That’s why it’s important to consult with professionals like Realtors in your area when you want to enhance the value of your home. Realtors see hundreds, if not thousands, of homes every year with their buyer clients and can provide valuable insight into what projects and improvements will make a difference with buyers in your area.”

Results of the report are summarized in the December 2008 issue of REALTOR® Magazine. The issue also includes examples of actual remodeling projects that were less expensive than many of the report’s cost estimates. Full project descriptions, as well as national, regional and local project data for the 79 cities covered by the report will be posted at by December 5. “Cost vs. Value” is a registered trademark of Hanley Wood, LLC.

For more information, visit

Refi Requests Up 230% as Mortgage Rates Continue Downward Spiral

by Alexandra Zega

RISMEDIA, Dec. 17, 2008-The continued and dramatic fall of mortgage rates this week led to a flood of refinance requests on Zillow Mortgage Marketplace, accounting for more than half of all requests. Refi requests are up 230% in the first half of December, compared with the first half of November.

The weekly average rates for 30-year fixed mortgages declined to 5.15%, down from 5.34% the week prior, according to the Zillow Mortgage Rate Monitor, compiled by leading real estate website Rates for 15-year fixed mortgages decreased to 5.00%, down from 5.16% and 5-1 adjustable rate mortgages increased slightly to 5.94% from 5.93%.


Rates for 30-year fixed mortgages remained fairly steady on Monday evening with the average rate on Zillow Mortgage Marketplace at 4.98%.

At a state level, the 30-year fixed mortgage rate in Tennessee had the biggest decrease, falling from 5.40% to 5.09%. Rates on 30-year fixed mortgages were lowest in the states of Georgia (5.07%) and Tennessee (5.09%), while Illinois (5.27%) and New York (5.25%) had the highest rates.


The Zillow Mortgage Rate Monitor is compiled each week using thousands of mortgage rates quoted on Zillow Mortgage Marketplace ( by mortgage lenders to borrowers who have submitted loan requests. State-level data is gathered for the top 20 states with the highest quote volume on Zillow.

According to the company, Zillow Mortgage Marketplace is an open and transparent lending marketplace, providing borrowers an anonymous and hassle-free way to receive an unlimited number of customized mortgage quotes directly from confirmed lenders.

Cyber Thieves Are on the Prowl This Holiday Season

by Alexandra Zega


RISMEDIA, Dec. 4, 2008-(MCT)-Holiday shopping has begun and everyone is out looking for a steal. And that includes criminals.

Internet users will get the usual barrage of offers that are too good to be true. Some will be deals, but others will be duds in the form of cyber criminals.

These bad guys will multiply their efforts this year to get shoppers to give out personal information, according to experts at Trend Micro, an Internet security firm. The struggling economy is giving crooks more incentive for ripping people off and stealing their identity online.

Just how prevalent is online crime? Try $3 billion taken by scammers last year, Trend Micro reports. What’s making the chance for this number to be higher this year is that consumers with less money to spend are being more aggressive to sign up for a bargain-and the crooks know this.

Here are some scams to avoid, according to Trend Micro:

- Messages that say things like: “Your package is ready to ship. Please update your account information,” “Your mom’s holiday e-card is only a few clicks away,” or “Register to win a $5,000 holiday shopping spree.”
- Requests to call a number to provide personal and financial information.
- Requests for personal information verification due to a bank merger.
- E-mails with sales information for hard to find toys and gadgets like the Wii.
- Fake online shopping portals.

The safer way to shop online is to go directly to the retailer’s website through the Web address instead of clicking a link. If you’re not sure of an offer, call the retailer. And don’t enter personal or financial information into a form that is included in an e-mail.

Trend Micro also advises avoiding: surveys that ask for personal information, e-mails with misspellings, 800 numbers to call to claim a prize and unknown senders of e-cards.

Finally, keep your anti-virus software updated and running. These programs can often detect bad sites.

Shopping online can be convenient, but like going to the mall, keep an eye on your surroundings and keep your information safe. One mistake can have longer-lasting implications, such as a damaged credit score or money missing from your bank account.

Alexandra Zega - Realtor - Keller Williams

(story Courtesy of Dan Serra)

Displaying blog entries 1-4 of 4

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