Burbank Real Estate Blog

Group of Seven finance chiefs, vowed to do whatever was necessary to prevent the collapse of major banks.

The policy makers included representatives from the U.S., Japan, Germany, U.K., France, Canada and Italy.

The G-7 policy makers were under pressure to roll out new policies, but they came up short on details which will undoubtedly disappoint many investors.

Global central banks have executed emergency interest-rate cuts and pumped more cash into financial markets and the Federal Reserve said it would buy commercial paper and start taking equity stakes in financial companies.

For more on this story, see Bloomberg.com.

Hopefully the aggressive efforts from the Federal Reserve, Treasury, and global central banks are beginning to ease the fear and lack of confidence in our markets.

Next week's economic calendar is full of key reports on manufacturing, inflation, consumer spending, and housing, so we'll see how this impacts the direction of the market and interest rates.

• Producer Price Index, Empire Manufacturing, business inventories, retail sales and the Fed's Beige Book release on Wednesday.
• Consumer Price Index, Industrial Production and Capacity Utilization, weekly initial jobless claims along with the Philly Fed Manufacturing Index will come out on Thursday.
• 
  Housing starts and building permits will be released on Friday.  Forecasts are calling for declines in both readings, which may be a good thing as we need for inventories to decline.

• A couple of things are clear, many people have lost confidence in the financial system and this is not just a U.S. problem as the aftermath of this financial crisis is being felt around the world.

• Federal Reserve Chairman Ben Bernanke brokered the broadest coordinated interest rate cut in history, among all of the central banks. Yesterday, the Fed, the European Central Bank, the Bank of England, Bank of Canada and Sweden's Riksbank reduced their benchmark rates by half a percentage point. The Bank of Japan and Switzerland also supported the action and China's central bank cut it's key rate by .27 percentage point.

• The stock market has reacted sharply to economic and credit data this week and ended today at 8579, down 679 points on the day. We have not seen these levels since 2003.

• The giant safety net that the Fed and Treasury have initiated has helped to keep the financial system afloat, but it has not restored confidence nor has it enabled US banks to start lending to each other again. Banks in Europe, as evidenced by the extremely high Libor rate, remain on the defensive and continue to hold on to cash. The Libor rate is at it's highest level this year.

Why should you care about the Libor rate?

Some business loans and many adjustable rate mortgages in the US are tied to the Libor rate, the rise will probably put added stresses on consumers and could offset some of the easing by the Fed over the past year if the rate stays high. Questions to ponder:

• Currently the nominal value of all delinquent US mortgages, as of the 2nd quarter, was put at $680 billion by High Frequency Economics. If this number is accurate, will the $700 billion bailout or rescue plan do enough to alleviate this problem. Additionally there is enough anecdotal evidence to suggest that this number will be rising over the next year. If you look at the reaction of the stock market this week, the answer to that question may be negative.

• It's clear we're in a recession, the big question is how long will we stay there and how long will it take the credit markets to unfreeze?

I think many things need to happen for the economy to turn around, but key elements include shoring up the unemployment situation as well as our credit markets. How quickly this will happen as well as cleaning up our mortgage situation will determine how fast we come out of the current quagmire.

As far as the local real estate market, we'll have to see how the local economy is impacted by unemployment and the current credit squeeze as well as the number of foreclosures coming online over the next few months.

Burbank Closed Sales for September 2008

Month to month average sale price from August to September 2008 is down $14,258, year over year, average sale prices are down by $127,253 or 19%.

Average days on market, year over year are up 23 days.

Average square footage is down by 8% year over year.

Most notably number of sold properties is down 34% from August 2008 and down 22% from September 2007.

These numbers are reflecting several factors……

• More foreclosures have been coming online, loans are hard to come by in the current credit environment.

• Mortgage applications have been down, despite lower rates, but mainly due the seizing up of the credit markets.

• Senate is set to vote tonight on an amended bailout bill, which includes temporarily raising the FDIC deposit insurance to $250k and continuing some tax breaks for corporations and individuals.  Apparently some in the House are working on an amended bill as well.  No House vote is scheduled yet.

• The National ISM fell sharply from 49.9 to 43.5. Economists were forecasting 49.5.

This is the lowest number since October 2001. ISM points to a recession as a reading below 50 suggests activity is receding and this is evident by sharp drops in new orders, production, and employment.

Moreover, experts are saying conditions may worsen since the full impact from the credit crisis is yet to be felt.

• ADP jobs report came in at -8,000 nonfarm payrolls for September, Employment Situation report is due out on Friday.

• Mutual fund withdrawals hit a record $74.5 billion in September. The previous record withdrawal month was September 2001, with $27 billion cashed out.

Equity fund withdrawals were over $50 billion of the total $74.5 billion. You could look at that as a really bad sign, but there is the glass is half full view.  Those investorswon't be racing back into the market yet, but it does mean there is a lot of cash available to return to the market when conditions are more favorable.

• Many have been debating the mark to market or fair-market valuation accounting methods. Some in Congress urged suspension of the rule. But the SEC and FASB have flatly rejected this idea. The FASB has issued a “clarification” of the existing rule.

Under this “clarification” they are now telling auditors that if there is no valid market for securities, the existing rules permit institutions to value securities based on reasonable cash-flow projections. This is huge, and it is also  controversial.  Considering the mortgage market started to malfunction last year you have to wonder where the SEC and FASB were during all of this and why they have waited so long to "clarify" the rules.

More to come!

• Senate is set to vote tonight on an amended bailout bill, which includes raising the FDIC deposit insurance to $250k and continuing some tax breaks for corporations and individuals.  Apparently some in the House are working on an amended bill as well.  No House vote is scheduled yet.

• The National ISM fell sharply from 49.9 to 43.5. Economists were forecasting 49.5.

This is the lowest number since October 2001. ISM points to a recession as a reading below 50 suggests activity is receding and this is evident by sharp drops in new orders, production, and employment.

Moreover, experts are saying conditions may worsen since the full impact from the credit crisis is yet to be felt.

• ADP jobs report came in at -8,000 nonfarm payrolls for September, Employment Situation report is due out on Friday.

• Mutual fund withdrawals hit a record $74.5 billion in September. The previous record withdrawal month was September 2001, with $27 billion cashed out.

Equity fund withdrawals were over $50 billion of the total $74.5 billion. You could look at that as a really bad sign, but there is the glass is half full view.  Those investorswon't be racing back into the market yet, but it does mean there is a lot of cash available to return to the market when conditions are more favorable.

• Many have been debating the mark to market or fair-market valuation accounting methods. Some in Congress urged suspension of the rule. But the SEC and FASB have flatly rejected this idea. The FASB has issued a “clarification” of the existing rule.

Under this “clarification” they are now telling auditors that if there is no valid market for securities, the existing rules permit institutions to value securities based on reasonable cash-flow projections. This is huge, and it is also  controversial.  Considering the mortgage market started to malfunction last year you have to wonder where the SEC and FASB were during all of this and why they have waited so long to "clarify" the rules.

More to come!