quinta-feira, 21 de maio de 2009

Homes: Most affordable in 2 decades

U.S. home prices are their most affordable in 18 years, according to a report released Monday.

Nearly 73% of all homes sold in the United States during the first three months of 2009 were considered affordable. That was the highest percentage ever reported by the 18-year-old Housing Opportunity Index, an analysis of markets compiled quarterly by the National Association of Homebuilders and Wells Fargo Bank.

To be deemed affordable, a family making the median national income of $64,000 must be able to buy the property and devote no more than 28% of their income toward housing costs.

Plummeting home prices were primarily responsible for sending affordability soaring from just over 60% in last three months of 2008 to 72.5% in the first quarter of 2009. Sinking interest rates also contributed to affordability. A 30-year fixed mortgage averaged less than 5% during much of the quarter, according to mortgage giant Freddie Mac.

"Underlying the increase in affordability are lower home prices and record low interest rates," NAHB Chairman Joe Robson said in a prepared statement. "Combined with the $8,000 federal tax credit for first-time homebuyers, consumers are beginning to return to the marketplace."
Most affordable city

For the 15th consecutive quarter, Indianapolis led the nation's large cities (population 500,000 and up) in home affordability. The Indiana capital tops the list due to very reasonable home prices and relatively high median income: Nearly 95% of all homes sold were affordable to those earning the metro area's median income of $68,100.

On the other end of the spectrum, only 21% of the homes sold in the New York/White Plains metro area were affordable to those earning the median income of $64,800. Even there, affordability jumped seven percentage points compared with the last three months of 2008.

Rust-belt cities dominated the most affordable list, with Youngstown Ohio; Akron, Ohio; Grand Rapids, Mich.; and Syracuse, N.Y., all near the top. Joining New York at the bottom were: San Francisco; Los Angeles; Nassau-Suffolk, N.Y.; and Honolulu.

Several smaller cities were even more affordable than Indianapolis. In Sandusky, Ohio, about 98% of homes sold were affordable to those earning the local median income. Monroe, Mich., and the Ohio towns of Mansfield, Springfield and Canton all exceeded 95% affordability.

Less affordable small markets were led by Ocean City, N.J.; San Luis Obispo, Calif.; Flagstaff, Ariz.; and Hanford, Calif.
Markets still slow

Despite the record affordability, both existing and new home sales are still slow. New homes have been selling at an annualized rate of 350,000 for the past few months. Existing sales have been consistently running at an annualized pace of less than 5 million units - about two/thirds the boom-years rate.

And increased affordability is not enough to drive sales quickly upward, according to Ken Goldstein, an economist and real estate analyst for the Conference Board.

"What really hurts is that people are losing their jobs now," he said. "The unemployment rate is at 9% going to 10%. That means that 90% of people still have their jobs but everyone is looking over their shoulders wondering if they're next."

As a result, there's still a double-digit inventory of homes on the market. Plus, a large proportion of recent sales have been foreclosures, homes repossessed from defaulting borrowers and put back on the market, often at fire sale prices.

Still, homebuilders are taking some heart in the improved affordability stats and other data indicating that perhaps the worst is over. Pending home sales were up slightly last month, and new home sales have risen off their bottoms.

Those trends have buoyed industry confidence slightly. The NAHB/Wells Fargo Housing Market Index, an indicator of builder sentiment that was also released Monday, inched up two points in May to 16 after jumping five points in April.

quinta-feira, 30 de abril de 2009

Money under the mattress?

Next week the government is expected to reveal the results of its all-important bank stress-tests. Investors and customers alike will be scrutinizing these numbers to make sure their bank has the wherewithal to survive in this tough economic environment.

But how you can be sure that the bank where you keep your money is safe?

The Federal Reserve's stress tests will value bank assets and analyze their capital cushion. And while investors will be scouring the reports next week looking for telltale weaknesses, here's the rub: for the average consumers, this information is less than useful.

What you need to know is whether your bank is lending to people like you, whether fees are out of sight, and if the bank's credit card department is cutting credit limits.

The Fed is less concerned about all of this, and the stress test is only being applied to 19 of America's 8,500 banks: yours might not even be tested.

Consumers are better off consulting sites like bankrate.com. The Web site offers a Safe & Sound rating system that can help you get a picture of how your bank is doing.

You can also check out HSH.com for mortgage and consumer loan information divided by region.

And remember, if you think your bank might be in trouble, don't panic. As long as your bank is a member of the FDIC, your money is protected up to certain limits. Through the end of this year, individual accounts are fully protected up to $250,000, and the same goes for all retirement accounts, including IRAs.

If you're over the limit, spread out your money at different institutions, or consider joining a credit union. Credit unions are just as safe as banks. Instead of the FDIC guarantee, you have the National Credit Union Association to back up your accounts.

Source: Cnn

One of the worst moves you could make is pulling your money out of a regulated institution and holding the cash yourself.

segunda-feira, 2 de março de 2009

U.S. takes another crack at AIG rescue

Insurance giant American International Group reported a stunning $62 billion quarterly loss on Monday, while government officials unveiled their latest efforts aimed at preventing the collapse of the firm.

Overwhelmed by ongoing deterioration in the credit markets and charges related to its restructuring, AIG's losses overwhelmed the firm during the fourth quarter. Its $61.7 billion loss amounted to $22.95 per share.

AIG's loss for the full year was even more dramatic -- $99 billion. In 2007, the company reported a profit of $9.3 billion.

To keep the company from cratering and causing broader fallout across the financial system, the government said it would overhaul its bailout, which is aimed at helping the besieged firm unwind in an orderly way.

"Given the systemic risk AIG continues to pose and the fragility of markets today, the potential cost to the economy and the taxpayer of government inaction would be extremely high," Treasury said in its announcement.

One main goal of the revamped rescue plan -- now totaling $162.5 billion -- is to help boost AIG's financial position by, among other things, reducing the interest it pays the government on its loans.

Key components of the plan included the government's decision to commit another $30 billion to the firm in exchange for cumulative preferred stock. The payment, which will come from the second half of the $700 billion rescue package enacted last fall, will not be a one-time payment but AIG will able to draw down the funds as needed to help strengthen its capital base.

At the same time, the Treasury Department, which has spearheaded efforts to keep the insurer from collapsing, will exchange its existing $40 billion preferred shares stake for shares that more closely resembles common stock. The change is expected to spare AIG from paying a large dividend to the Treasury.

The government has extended more than $150 billion to AIG since September. Regulators have feared that the bankruptcy of AIG, which does business in more than 130 countries, would have disastrous consequences.

Since then, the government has pushed the New York-based insurer to sell pieces of its business to repay its loan commitments. But a tough economic environment combined with a weakened appetite among potential buyers has hampered those efforts.

"AIG is executing one of the most extensive corporate restructuring programs in history at a time when the global economy and capital markets are in turmoil," said Edward Liddy, AIG's chairman and CEO, who was appointed to lead the firm in September after the Federal Reserve arranged financing for the insurance giant.

So far, the company has managed to shed just a few of its different divisions including the German reinsurer Munich Re, Hartford Steam Boiler Inspection, which insures equipment as well as its stake in the Brazilian bank Unibanco to Uniao de Bancos Brasileiros.

Monday's agreement, which marks the third revision to the government's rescue efforts for AIG, also included key revisions to the terms of the $60 billion credit facility that was created by the Federal Reserve Bank of New York.

That line of credit will be reduced to no less than $25 billion in exchange for giving the New York Fed a stake in two life insurance subsidiaries owned by AIG. At the same time, regulators said they would relax some of the terms of AIG's repayment by lowering the initially agreed to interest rate.

At the same time, the New York Fed said it was ready to provide up to $8.5 billion in credit to certain life insurance divisions owned by AIG. Money generated from life insurance policies are expected to be used to repay those loans, the Treasury Department said.

The government's efforts prop up AIG yet again comes just days after regulators moved to shore up Citigroup (C, Fortune 500). On Friday, the Treasury converted part of its preferred shares in the beleaguered bank, giving it control over as much as 36% of the firm's common stock, a shift that is designed to improve the embattled bank's capital base, which in turn will hopefully allow it to increase its lending.
 

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