US Federal Reserve lowers rates!!
The following is the text of two statements issued by the U.S. Federal Reserve on Friday:
“Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward. In these circumstances, although recent data suggest that the economy has continued to expand at a moderate pace, the Federal Open Market Committee judges that the downside risks to growth have increased appreciably. The Committee is monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets.”
“To promote the restoration of orderly conditions in financial markets, the Federal Reserve Board approved temporary changes to its primary credit discount window facility. The Board approved a 50 basis point reduction in the primary credit rate to 5-3/4 percent, to narrow the spread between the primary credit rate and the Federal Open Market Committee’s target federal funds rate to 50 basis points. The Board is also announcing a change to the Reserve Banks’ usual practices to allow the provision of term financing for as long as 30 days, renewable by the borrower.
These changes will remain in place until the Federal Reserve determines that market liquidity has improved materially. These changes are designed to provide depositories with greater assurance about the cost and availability of funding. The Federal Reserve will continue to accept a broad range of collateral for discount window loans, including home mortgages and related assets. Existing collateral margins will be maintained. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York and San Francisco.”
Equity and Cashing Out
I want to share some data with you. Sometimes we find something that is just interesting in the market and I think this is one of those things. The trend of taking cash out of our homes is at an all time high but that is going to be changing and I want you to know about it.
In 1993 the total amount of equity taken out of our homes was $19.9 billion. That sounds like a lot of money doesn’t it? Well in 2000 that rose to $26.2 billion and in 2003 the number was $147.0 billion and in 2006 it is expected to be $352.1 billion when the final numbers are in. WOW!! We are using our equity in amounts (and ways) never seen before. I will share that in 2007 the forecast is that we will see decline to $254.4 billion and in 2008 Freddie Mac says it will fall even further to $128.1 billiion. This data comes from http://www.freddiemac.com/ if you want to know more you can go check it out for yourself.
The reason for the rise is that it was available to us because the appreciation and increase of the market made the money available. With the market flattening it is going to make the money less available in the future and may cause some consequences that we did not expect.
I can’t tell you what all that money was spent on but there are some trends that we see that are disturbing. Much of the debt noted above is used to pay off older, higher interest debt from credit cards, car loans, etc. That means that much of it is spent on something already used up or at least worth a lot less than the debt that was retired. The danger of this is that it releases us to spend more money we really don’t have which can make a bad problem worse.
Some of the debt was used to finance new purchases like cars, home improvements and vacations. College is another expense that is handled this way too. While none of those things are bad it may be putting you at risk financially if you aren’t cautious.
By taking out more debt on your home you are setting yourself up for some potential pain. If you get into trouble by losing your income (job changes, illness, etc.) then you will have trouble making the payments and potentially losing your home in a foreclosure. Second, in the flatter real estate market you may not be able to sell your home for enough to pay back the debt and meet the other expenses of selling your home causing you to have to bring cash to the table to sell.
I know there are lots of people out there that are in this position today and while I can help, it is painful to go through and I would love to see everyone avoid that. I guess my point is that you need to be VERY careful when you consider taking equity out of your home and make sure it is for the right reasons. Using the money to take a great vacation or buy that BIG screen tv may not be the best idea.
If you want to discuss this more or have questions, I am always available to talk. Call me at 678-318-4984 anytime and we’ll get together. jwr
1111 Beth Meadow Ct – Great family home at $209,900
This house is located in the Collins Hill High School district and is in great condition. It has 4 bedrooms upstairs, 2 full baths upstairs and a half bath down. There is a custom built pantry for lots of space in this open kitchen. There is not another one like it in the neighborhood. There are hardwood floors downstairs with a formal living room and dining room just off the two story foyer. Come and see it by clicking here.
The fully fenced back yard is special with a custom built deck located in the back corner in a wonderfully shaded stand of trees. The side entry garage and great neighborhood makes this special. The neighborhood has a great pool, lighted tennis courts and a community pavilion that can be used for parties and gatherings. Call me at 678-318-4984 to arrange to see it. jwr
227 Jackson St. Prime Professional Office Space
Completely done and ready to go. This ‘house’ was purchased and professionally finished into a top grade office space that is on Jackson St in Lawrenceville. Jackson St. will soon be relabeled Hwy 20 so don’t wait to get this one purchased. We have completed the downstairs and have about 1100 Sq Ft there with an additional 600 +/- Sq Ft being done upstairs with a terrace level and a private back lot that is totally paved. You can see more if you click here. The price is $399,000 and will be a great attorneys, lender or even a real estate office space. Any professional will have a great image here.
Hardwood floors, custom moulding, fenced and landscaped lot fully paved and lots of great features. Upstairs will be reached by a custom spiral staircase. Come check it out by calling me at 678-318-4984 to see it. jwr
104 Hurricane Shoals Rd – Auto Sales and Service Center For Sale
This is a unique listing. Lawrenceville is growing and they have put a limit on this type of business. We are grandfathered in and have a full sales and service center available for $699,000. All of the equipment is available too for an additional $100,000 or $799,000 for a turnkey business. You can find more info by clicking here. You will be located just a few feet away from Hwy 20 just north of town and south of SR 316. This is a high traffic location and really easy to get to. If you are looking for a great location for your business or to start a new one I don’t think you can beat this one. Call me at 678-318-4984 to arrange a showing. jwr.
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