CHESSNOID

This past week it rained almost everyday in Southern California. At least in my neck of the woods and I enjoyed it immensely. We are still in a drought even with all the rain we received. There are flash flood warnings in the desert and tons of snow in the mountains. We are still expecting more rain this coming week. This type of cold wet weather does remind me of Seattle which I visited last April. I would love to go back and visit and eventually live up there.

The prices of condos are actually falling in Seattle. Many enthusiastic homeowners in Seattle felt that the overall economy would not affect their city because they have major tech companies that support their state such as Amazon, Microsoft, and a few more big companies. On certain blogs I read, these two companies are planning to move part of their companies into buildings closer to downtown Seattle to make it more convenient for some of their commuting employees. Another argument for prices not falling in that part of the company is people have higher incomes and better credit than the overall nation. I don’t really buy into either theory but I may be more objective since I don’t live there yet. I do get daily emails of condos for sale through Redfin which sends me updates of not only new listings in that area but updates of all price changes by the sellers. It seems like every week the prices are dropping like the rest of the nation. I have kept all the emails and am planning to compare prices from month to month and see if there is any forecast I can create for myself from the data.

A recent article in bloomberg suggests that the new housing market may have bottomed. I read the post and the main argument is analysts are changing company ratings from sell to neutral after builders had posted their worst loss in their company histories. This coupled with government intervention in slashing interest rates seems to be the only reason why they think builders have hit bottom with a possibility of raising limits on loans.

The Fed on Jan. 22 cut its target overnight lending rate to 3.5 percent from 4.25 percent. The reduction increased optimism mortgage rates will fall and help more people buy homes.

Raising Limits

U.S. lawmakers are poised to approve measures that may boost demand for housing. An accord reached in Washington would temporarily raise the limit on the size of mortgages that federally chartered mortgage-finance companies Fannie Mae and Freddie Mac can buy to $729,750 from $417,000.

I don’t think raising loan limits is actually going to have the effect many brokers and lenders want which is to increase lending activity. To afford a loan payment on $729,750 loan at today’s rate the monthly payment is about $4,200 a month and that doesn’t include taxes and insurance, your monthly income has to be about $15,000 a month. Do you think the majority of American households earn that much every month? Hell no! When we had the creative loans with no docs and teaser rates, everyone could get loans they couldn’t afford. This is one of the main reasons for the subprime debacle. Now that these loans are gone, these new loan limits are definitely not going to have the effect they once had. And with all the losses banks and brokerages have taken, I doubt these types of loan products will be as popular even with the rates being lowered.

The stock markets finished down Friday, but the markets actually finished up in positive territory this week for the first time in January. We had the emergency rate cuts of .75 and a stimilus package to give everyone who paid taxes about $600-$1200 rebate checks with an extra $300 per kid created to help the economy. We should be getting those checks by March or April once it is passed by the House and Senate. I will probably buy stocks with my share.

Apple stock looks attractive to me right now. It was trading over $200 a share just a couple of months ago and it is now at $130 a share even though they just posted their best profit earnings. This is one of the stocks I sold last year, but am considering picking it up in a few months when I start buying stocks again. For now, I think it is best to stay out of the market if you don’t like volatility or negative returns even if you are a dollar cost average investor.