Financial Markets
Can the Economy and Housing Market Bounce Back in 2011
January 8, 2011 by James K Barath, CMPS · 4 Comments
Overall, the economy looks to have stabilized from the crisis situation a couple of years ago. Although there are still some global economic concerns in Europe, the U.S. economy appears positioned for continued growth and strengthening – especially in terms of meeting the growing demand for goods in Asian and Latin American countries.
The stock market finally had a good year in 2010 and saw some strong earnings to help continue the climb out of the financial crisis a couple of years ago. With the strong finish to last year, the stage is set for another good year in stocks.
The positive economic news and corporate earnings in 2010 should also help the labor market strengthen in 2011. Of course, it won’t turnaround over night, but will instead start out slow and build up to more noticeable improvements in the latter part of the year.
But don’t mistake those improvements for a complete rebound, since we probably won’t see significant improvement in the overall unemployment rate until after 2011. Still, any positive news for the labor market is good news for the economy – and for families across the country!
What Does All That Mean to Housing and Home Loan Rates in Northwest Indiana?
The economy, stock market, and employment are all closely related. For example, an improving economy leads to better corporate earnings and increased manufacturing demand, which in turn leads to increased hiring as companies try to meet that demand.
In addition, all of the aspects discussed above influence the housing market and home loan rates. One of the biggest influences is employment, since people who are unemployed, under-employed, or afraid of losing their jobs are less likely to purchase a new home. So the improvements in the labor market will be good for the housing industry as well. And in terms of home prices, a more secure employment market can help home prices stabilize – since fewer people would be at risk of losing their homes to foreclosure.
That said, it’s important to remember that all real estate markets are local…and that means there can be enormous variations across the country, state, county and even our local communities right here in Northwest Indiana. Areas where employment is struggling, the housing market will continue to struggle as well. However, in many parts of the country where the bottom has been tested and employment is improving, we’ll see the housing market on the mend in 2011.
Do you want to know how the housing market is in your community? Contact me for a great Realtor referral.
Financial Markets
Who Cares About the BIG 3
November 19, 2008 by James K Barath, CMPS · Leave a Comment
On my drive to work this morning, I noticed the flashing digital sign in front of our local Pontiac/Buick dealership. All the advertisement declared massive reductions on prices. MSRP $29k…NOW $21k. MSRP $18.5k…NOW $15k. MSRP $23k…NOW $17.9k. You get the hint.
While taking in the blitz of markdowns, the talk on CNBC radio was the 2nd day of congressional hearings about General Motors, Ford & Chrysler (aka the BIG 3). I began to ponder the following question: What is all the clamor on capitol hill about the viability of the BIG 3?
In a normal business model, if you can’t get the execution right you will ultimately fail. Why would it be any different for the BIG 3? If they have a viable business model, go through legal options of bankruptcy and restructure. Learn from the mistakes and rebuild a better company.
If history is any indicator, the BIG 3 has had a reluctance for change which has led to its dwindling prowess in the auto industry as a whole. At the end of the day, what kind of message would you be sending to consumers if all they saw was that you are no longer worth it?
Financial Markets
Health Care & Mortgages…Not So Different
November 15, 2008 by James K Barath, CMPS · Leave a Comment
As I was reading the article “Employers Offer Workers Fewer Health Care Plans“ posted in this morning’s NY Times, it occurred to me that the article was very reminiscent of the mortgage industry. If you removed all the health care jargon from the article and replaced with mortgage lingo you would come to the same conclusion.
- Increase in Upfront Deductibles – Increase in Fannie Mae Delivery Fees
- Increase in credit-risked base premiums – Increase in credit-risked base add-ons to mortgage rates
- Increase in restrictions on insurance eligibility – Increase in restrictions for mortgage eligibility
- Reduction of health related issues covered by policies – Reduction of available mortgage programs for non-owner occupied homes
- Reduction in health coverage – Reduction in loan-to-value
- Reduction in offered plans – Reduction in mortgage products
- Socialize health coverage – Nationalize mortgage industry
It should be noted that none of the above would be an issue in a robust economy; unfortunately, this is not that time. This is simply to point out that there are other parts of the economy that are just as problematic as the housing market & mortgages.
Financial Markets
I want to be like AIG!
November 14, 2008 by James K Barath, CMPS · Leave a Comment
You read correct. I want to be like American International Group, Inc. (better known as AIG).
As crazy as it may sound, I do wish I had the impact and relevance that AIG has on the world. Their reach transcends 130 countries & jurisdictions, as well as serving commercial, institutional and individual customers.
You may still be pondering the fact that they had a $150 billion loan restructured several days ago. Although their transactional business is in question, this plays directly into why AIG is such a great business model.
What? Huh? Are you kidding?
I wish this was a joke. Let’s evaluate why they are such an ideal model. Have you heard the term “systemic risk” spewed from analysts, government & investors as the underlying reason why this company was rescued, while others were left to go belly up.
According to National Futures Association, systemic risk is defined as “Risk that the financial markets as a whole will cease to operate or will operate inefficiently.” In otther words, to allow AIG to fail would have been catastropic for markets world-wide.
It is for this reason that you could aspire to be AIG. How awesome would it be to know that no matter what you did in life that no one would allow you to fail. Without you, everything would cease to function properly. You essentially become the commidity that no one can live without. WOW!
Financial Markets
The Obama Mortgage Effect
November 13, 2008 by James K Barath, CMPS · Leave a Comment
Whether you like or dislike Barack Obama there has been pre-emptive domino effect with Wall Street banks and government agencies that has the markets running in circles. Everyone knows that the subprime debacle, homeownership, foreclosures and devalued real estate markets have been in the headlines and a primary reason that Democrats did so well in the general election. Now that there is a president-elect the entire world has been carefully listening & dissecting the future agenda of the new administration.
- “Close Bankruptcy Loophole for Mortgage Companies: Obama and Biden will work to eliminate the provision that prevents bankruptcy courts from modifying an individual’s mortgage payments. They believe that the subprime mortgage industry, which has engaged in dangerous and sometimes unscrupulous business practices, should not be shielded by outdated federal law.”
It was Obama’s renewed vigor for this portion of his platform that forced the hands of the Federal Housing Finance Agency, Department of Treasury, FHA, Fannie Mae, Freddie Mac, FDIC, HOPE Now participants and major banking institutions to swiftly change the dynamics of their approaches and programs to assist distressed homeowners. These modifications appear to be beneficial to consumers on the surface in the short-term.
Unfortunately, it will be investor appetite for the underlying securities that create the capital to lend that will dictate the long-term effect of this Obama effect. Judicial loan modifications would create an asset that would carry greater risk than equities because a judge could modify the term, interest rate and principal balance. If investors have no guarantee that the assets they are buying have legal terms, they will either leave the market and/or require greater returns for their cash. This would ultimately cost consumers more and not less.
