The Chinese government is very concerned about the rapid rise in inflation in China that has sparked 5 interest rate hikes this year alone.  China’s economy is anticipated to grow at a rate of 11% this year alone.  Compare that to the US at 2.3% growth rate.  Rapid inflation is a particular concern for food prices which would effect China’s poor majority population.  So…in response, the Chinese government put a price freeze on certain products to help ease some of the pressure for China’s poor.

Front page news today in the Honolulu Advertiser: Home Foreclosures Tripled In Hawaii.  Yes, there is a concern whenever we see a rise in the number of foreclosures, but overall the Hawaii real estate market is stable and strong compared to most areas of the country.  Lets take a look at a few of the items in the article:

Home foreclosure filings in Hawai’i more than tripled in August from a year earlier. Foreclosures are rising nationwide because many consumers can’t keep up with mortgage payments and face difficulty trying to refinance or sell their property as the housing market slows and prices drop in some areas. In many cases, defaults are rising because interest rates are resetting at dramatically higher rates for exotic loans heavily marketed to sub-prime borrowers over the past several years.

This is a concern, but Hawaii has a pretty strong real estate market with only 5.5 months of inventory on the market (a balanced market is 6-7 months of inventory, and our months of inventory remaining are just above the lowest inventory levels that were seen during the height of the Japanese market boom of the late 80’s early 90’s.)  Our prices have held steady for the last 8 months, in fact, we are up over 1% from a year over year standpoint.

However, the company said the year-over-year change may have been inflated because of expanded data coverage for the state compared with a year ago.

Ok…does that not make the data completely unreliable and untrue? 

Hawai’i has the 10th-lowest foreclosure rate in the nation.  In the mid-1990s, Hawai’i foreclosures ranged between 4,000 and 5,000 a year, said Nick Ordway, professor of Financial Economics & Institutions at the University of Hawai’i and chair of Hawaii Real Estate Research & Education Center at UH. When told of the 145 Hawai’i foreclosures last month, Ordway said, “That’s nothing”.  Hawai’i has maintained a relatively low foreclosure rate thanks to mostly stable home prices and a strong job market. Local lenders also say Hawai’i borrowers generally were more conservative, and didn’t take out as many of the riskier loans compared with some Mainland markets.

Now that tripling of home foreclosures doesn’t look as bad now does it?  I was at the counter at the gas station today and the clerk looked down at the newspaper I was buying and more specifically at the headline of this article and said, “Good thing I don’t own a home.  I don’t have to worry about that.”  Thanks for the laugh.

Yes, there is a problem, but it isn’t nearly as bad as the headline would make you think or as bad as the news coming out of some areas like Michigan, but then again, who wants to live in Michigan?

Looks like the Fed Government wants to do as much as possible to help ease the troubles of consumers with mortgage troubles.  In House Eyes Changes At Housing Agency we see:

Both House lawmakers and the Bush administration want to allow the FHA, which insures mortgages for low- and middle-income borrowers, to back refinanced loans for borrowers who are delinquent on payments because their mortgages have reset to higher rates from low initial levels. The administration wants the FHA loan limits to be raised to $417,000 in high-cost areas.

So, you are saying to yourself, “The Fed just cut rates by half a percentage point, I should refinance now because mortgage rates are lower.”  Well, that isn’t exactly true.  Almost all longer term mortgages (ARMS of three years or more) are based on Mortgage Backed Securities that trade on the Bond Market.  These Securities have no direct correlation with the Fed action to lower interest rates.  To learn more, read this article from the Mortgage Planning Specialist Institute This will tell you what will be directly affected by the Fed’s decision to lower rates and why.  Also read, Full Impact of Fed Move Will Take Time

August Foreclosures Zoom is the headline.  The question is, “Is there any help in sight?”

The jump in foreclosure filings this month might be the beginning of the next wave of increased foreclosure activity, as a large number of sub-prime adjustable rate loans are beginning to reset now, James Saccacio, chief executive of RealtyTrac, said in a statement.

Well, we already got a little bit of help as the Fed cut interest rates by a half a point.

Many adjustable rate mortgages are tied to one-year Treasurys, which tend to follow in the same direction as the Fed Funds rate.

People still have to be able to qualify for loans in order to take advantage of the lower rates.  It looks as though the Fed government is attempting to ease the pain of some homeowners who’s mortgage payments are about to adjust higher.

The House approved Tuesday a plan to expand federal backing of mortgages in hopes of helping struggling homeowners avoid foreclosure.

The other rumor is that the Fed government will raise the maximum amount on what it considers to be a conformingloan.  This would allow borrowers to qualify for a larger loan amount with a lower rate (conforming loan rate and less risky loan) as opposed to having to obtain a non-conforming loan (Jumbo Loan) who’s rates are almost an entire 1% point higher than conforming loan rates right now. 

The long awaited Fed decision arrived with a bang! The Fed surprised many economists and traders with a half percent cut in both the Fed Funds and Discount Rates. Stocks soared higher and enjoyed their largest gain since 2003.

What does the Fed cut mean? Rates on consumer debt, car loans, and Home Equity lines will all benefit. But because Home Loan rates are tied more closely to inflation, it is not uncommon to see less of a reaction…or even an opposite reaction in mortgage rates.
The Fed cut also hurts rates of return on investments, which gives foreign investors less incentive to invest in US securities. This has sent the Dollar much lower against the currency of most major foreign countries. This makes foreign goods more expensive for us to buy, which adds to inflation pressures.

Overall, the Fed cut is good news for the economy, but may nudge inflation a bit higher.

Here are some of the better articles discussing the Fed’s Decision and it’s effect:
Fed Cut Could Bouy Housing Markets
Borrowers Get Small Break From Fed

The real impact of a half-point drop for households is in mortgage products. “That’s true for both fixed-rate mortgages and for adjustable rate loans,” said McBride. Some ARM rates are tied to one-year Treasury yields and homeowners with loans resetting higher this fall could be facing rates of 6.75 percent, rather than 7.5 percent.

There was a really good article that discusses a different way to pay for the cost of developing Oahu’s infastructure in new development areas.  The tax would definitely become a disclosure item and could have an effect on prices depending on the cost of the tax.  A several thousand dollar a year tax would adversely effect the price of homes in the areas where the tax is applied vs. homes in the areas that don’t have hte tax added on.  Read more.

Here is the IRS information on various items that may benefit you.
http://www.irs.gov/newsroom/article/0,,id=124364,00.html

Moving Expenses

Your moving expenses may be deductible on your federal tax return if you meet certain tests relating to all three of the following requirements:

• Your move is closely related to the start of work at a new job location,
• You meet the distance test, and
• You meet the time test.

However, if your employer reimburses you for the cost of the move, the reimbursement may have to be included on your tax return.

For more details on the qualifications for deducting moving expenses or reporting reimbursement, review IRS Publication 521, Moving Expenses. Also see Form 3903, Moving Expenses, which is used to figure the amount of the deduction.

Buying a Home

Many people find that home ownership allows them to itemize deductions on their tax returns. If you’re a first-time homeowner, you should know that mortgage interest, “points” paid to obtain the mortgage and real estate taxes are deductible expenses that can be itemized to help reduce the amount of taxes you owe. Other expenses that can be itemized and deducted include medical costs, certain state and local tax payments, charitable contributions, casualty losses and certain miscellaneous deductions. If the total amount of your itemized deductions is more than the standard deduction amount, you can usually benefit by itemizing.

See if itemizing will make financial sense for you by reviewing Pub. 17, Your Federal Income Tax, and the instructions for Schedule A of the Form 1040. Review Pub. 530, Tax Information for First-Time Homeowners, for more information on allowable home-related deductions.                

Selling Your House

If you sell your main home, you may be able to exclude up to $250,000 of gain ($500,000 for married taxpayers filing jointly) from your federal tax return when it’s time to do your taxes. This exclusion is allowed each time that you sell your main home, but generally no more frequently than once every two years. To be eligible for this exclusion, your home must have been owned by you and used as your main home for a period of at least two out of the five years prior to its sale. You also must not have excluded gain on another home sold during the two years before the current sale.

If you and your spouse file a joint return for the year of the sale, you can exclude gain if either of you qualify for the exclusion. But both of you would have to meet the use test to claim the $500,000 maximum amount.

If you do not meet the ownership and use tests, you may be allowed to use a reduced maximum exclusion amount if you sold your home due to health, a change in place of employment or unforeseen circumstances. Unforeseen circumstances can include divorce or a disaster resulting in a casualty to your home, for example.

For more information, see Pub. 523, Selling Your Home.

Reporting Your Change of Address

If you have a new address, notify the U.S. Postal Service, so it can forward any tax refunds or IRS correspondence. The Postal Service will also pass your new address on to the IRS, which will update your account. You may also notify the IRS directly by sending Form 8822, Change of Address. Or write to the IRS center where you filed your most recent return and provide your full name, old and new addresses, Social Security number and signature. Remember to let your employers know about any address changes so you’ll receive your W-2s after the end of the year.
 
IRS publications and forms are available in the Forms and Publications section of this Web site, or you can order a free copy by calling toll-free 1-800-TAX-FORM (1-800-829-3676).
 

What could possibly slow down the Chinese economy?  How about interest rates. 

The People’s Bank of China raised interest rates again, four days after China announced that August’s inflation index rose to a 11-year high. Starting Sept. 15, the benchmark one-year lending rate will rise to 7.29%, from 7.02%. The one-year deposit rate will rise to 3.87%, from 3.60%.  The markets had expected the Chinese central bank to raise interest rates for a fifth time before the end of this year. China’s policymakers’ most recent rate hikes—coming three weeks since the last increase—coupled with other measures taken last week, have sent a strong signal to the financial markets that Beijing is willing to take more aggressive action to keep inflation under control.

5 rate hikes in one year? Wow.

Could the housing news get much worse? How about:

The number of adjustable rate mortgages (ARMs) up for reset is set to peak this fall, with an estimated $50 billion worth poised to adjust to higher rates in October.

At a time when the problems will likely max out,  you may want to think about getting off the sidelines and into the market. If you have ever heard the term, “Buy on bad news, sell on good news.“  Now would be the time to put this practice to good use.  It doesn’t get much worse than it will over the next year, historically speaking, so……

If you have been asking yourself: Should I buy a home now in this calmer real estate market?…Or should I wait for the market to improve?

Perhaps there’s a better question to ask: “Is it better to buy in a buyer’s market or a seller’s market?

In case you don’t remember what an overheated seller’s market is like, let’s go over the “fun” time home-buyers just went through for several years:

- Homes with multiple offers, often 2 or 3 or 10 or more.
- Rushing, checkbook in hand, to see new listings before the horde of other home-buyers got there
- Offering over full price just to be in the game, but usually losing the home they wanted.
- That desperate, beaten feeling knowing they’d have to settle for a home they didn’t want.
- Lucky to get ANY home at all.

Now let’s compare that to today’s calmer market…

- You’ll actually have homes to choose from due a bigger “inventory” of homes for sale.
- Fewer home-buyers to compete with and multiple offers are not as common.
- Less stress and rush and panic.
- You can shop and find a home you want instead of settling for one you’re lucky enough to get
- THE LOWEST INTEREST RATES IN 40 YEARS (For every 1% interest rates go up, your buying power drops 10%? On a $2,000 mortgage payment, the amount you can borrow drops from $311,000 down to $281,000.)

So let’s ask that question again: “Is it better to buy in a buyer’s market or a seller’s market? 

The market is nearing it’s worst position historically, (in certain regions of the country more than others).  Now would be a great time to take advantage of the weakness in the housing market to position yourself for the future.  Contact me to discuss your best options.  If this sounds like a crazy idea to you read The New Land Grab.  If big business sees the opportunity, shouldn’t you?