US rates slashed to nearly zero

The US Federal Reserve has slashed its key interest rate from 1% to a range of between zero and 0.25% as it battles the country's recession.
In its statement, the Federal Reserve warned that "the outlook for economic activity has weakened further".
It predicted that rates would stay at the current exceptionally low levels "for some time".
It added that it was considering ways it could spend money on supporting the economy and credit markets.
Analysts said that the key rate is now virtually zero.
"Whether it's zero or 0.25% actually does not make a huge difference," said Holger Schmieding at Bank of America.
He added that the more important factor is what policymakers plan to do now that they cannot cut interest rates any further.
The Federal Reserve is already injecting billions of dollars into the banking system as well as buying debt based on home loans.
Postpone purchases
The Federal Reserve stressed that it was already planning to buy large quantities of additional debt based on mortgages and is considering whether it would be a good idea to buy long-term US government bonds.
The strategy of a central bank buying government bonds mirrors the so-called quantitative easing carried out by the Japanese government when it was fighting deflation in the late 1990s and early 2000s.

The Federal Reserve promised to use "all available tools"
Deflation becomes more of a risk as interest rates approach zero.
It is a serious problem for an economy because people postpone making any large purchases as they believe prices are going to fall, which stifles economic activity even further.
Quantitative easing is, "just another word fr the central bank injecting so much money into the system that a good deal of it is passed onto households and businesses at a reasonably low interest rate," Mr Schmieding explained.
The rate has been cut drastically by the Federal Reserve from the 5.25% where it stood in September 2007.
Market response
It is the lowest the central bank's key rate - the target rate for banks to charge to lend to each other overnight - has been since records began in 1954.
The decision received a luke-warm initial reception from the stock market, with the Dow Jones Industrial Average rising from 8,684 just before the decision to 8,740 about half an hour after it, which is a rise of just 56 points.
But once the news had been digested, the Dow Jones closed up 360.4 points, or 4.2% at 8,924.9.
"You've seen the dollar weaken because it was a larger than expected cut - the dollar is falling against all major currencies," said Matt Esteve at Tempus Consulting in Washington.
"On one side, we effectively have a zero interest rate in the US - on the other side, the Fed has sent a sign that they are ready to use all tools to help the US economy out of recession."
Earlier in the day, official data confirmed that the threat of inflation is receding, as consumer prices fell a record 1.7% in November.
Government help
President-elect Barack Obama said in a speech on Tuesday that his administration would also be doing its bit to stimulate the economy because the central bank could no longer use its main tool.
"We are running out of the traditional ammunition that is used in a recession, which is to lower interest rates," he said.
"That's why the economic recovery plan is so absolutely critical."
He has undertaken to create at least 2.5 million jobs by 2011 as well as launching a programme of improvements to the country's infrastructure.

story courtesy of BBC news

Lessons Learned: Low-cost mortgage could be a big gift

By GENE KELLY/Personal Finance ColumnistFriday, Dec 12, 2008 - 12:17:17 pm CST

December is dwindling down to a precious few days. Yet, there may still be time to power shop for a major family gift — a low-cost home mortgage.Fixed rates available on 30-year and 15-year loans are the lowest in a half century. This appears to be a major inflection point for long-term interest rates.A few days ago, a Lincoln friend called to share good news: Instead of making payments on both a first and second mortgage, she had just locked in a 30-year mortgage that will carry a bargain fixed rate of 5.25 percent.“We knew rates had been dropping,” she explained, amidst all the upheaval in the credit markets and loan foreclosures. Their old “piggyback” loan package consisted of a larger 30-year fixed loan with an interest rate of 5.75 percent, and a 10-year second mortgage that had a 7 percent interest rate.“Since mortgage rates change daily, we asked our mortgage broker about refinancing,” she said. “He found us a low-cost mortgage, with no origination fee or discount points.“One Lincoln-area lender has even advertised a 30-year fixed rate of 5.125 percent. The rate can be dropped to 5 percent by paying a 0.25 percent discount fee, or to 4.875 percent by paying a 0.50 percent discount.Moreover, the Treasury Department is considering ways to encourage banks to offer rates as low as 4.5 percent for newly-issued 30-year fixed mortgages.Of course, to get a low-cost mortgage, you’ll need a good credit history. Banks have tightened lending standards. Having a credit score of 740 or more should put you in the catbird seat.So before you shop for a new mortgage, check your credit scores and request your credit reports at http://www.annualcreditreport.com/.Declining mortgage rates mean the next few months could be a terrific time to trade up to a bigger house or buy a first home.A home is more a shelter than an investment: Over the long run, home prices tend to increase at an inflation-adjusted rate of 3 to 4 percent a year, roughly in line with household income.Everything seems to be on sale. Since I’m a card-carrying contrarian, you’ll find me shopping for short-sleeved shirts when the winter merchandise cubicles are being stocked. I’m the type who would look for a new umbrella only on a sunny day.Nearly all assets have been repriced. Double-digit markdowns have affected investments ranging from the big dividend-paying growth companies to gold and other commodities, and from high-yield junk bonds to aggressive small-cap stocks.I was as puzzled as anybody by the dramatic global collapse of bond and equity investments. But why are so many long-term investers running away from the resulting bargains? Provided you don’t need your savings in the near future, this could be a phenomenal opportunity to accumulate cheap shares. Readers tell me all their savings are going to be moved into bank accounts, Treasury notes or money-market funds.True, you can get a seemingly-decent yield on certificates of deposit. But after subtracting inflation and taxes, this approach is guaranteed to shrink your purchasing power over the coming decades.Looking into 2009: While volatility will continue, I believe the bear market in stocks has bottomed. If the bear cycle and the recession play out as they have historically, the economy should begin to grow again in the second half. U.S. stocks would then end the year in the black.Early filers: Extra real-estate standard deduction now available. If you usually bulk up your itemized deductions by accelerating payment of charitable donations or state and local taxes into the current year, a change in the Internal Revenue Code might mean a change in strategy:For 2008, you could be better off claiming the standard deduction. For the first time, you can take a new, additional standard deduction to reflect real-estate taxes — up to $1,000 for married folks who file jointly and $500 for singles.A 65-year-old married couple who file jointly could get a standard deduction that totals $14,000 for 2008, if they paid at least $1,000 in state and local real-estate taxes. To do the math, both husband and wife get a basic standard deduction of $5,450. There are additional amounts for those 65 or older add $1,050 for the wife and $1,050 for the husband). Finally, add $1,000 for the new real-estate standard deduction.This change in the tax code will be available again for 2009.

Investor Report: Rethinking Controversial Limits

Here's some potentially good news for investors from the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac.

James Lockhart, who runs the agency, says there's been some "re-thinking" underway on the controversial limits on the numbers of rental properties investors can own if they're seeking new financing.
Both Fannie Mae and Freddie Mac have imposed a four-unit limit, reversing their previous investor maximum of ten units.
The rationale for the change, according to the agencies, was their belief that investors who own higher numbers of rental condos and houses pose a greater risk of default, foreclosure and loss for the companies.
The restriction effectively shut out many small investors from Fannie's and Freddie's standard programs -- and pushed them into much higher-cost financing from so-called "hard money" lenders.
In a letter to Charles McMillan, president of the National Association of Realtors, Lockhart said, "While no final decisions have been made, I can share with you the fact that the issue of raising the selling guide ceiling on investors loans is under active consideration at one of the (corporations), and reflects an appreciation of the role for investors in the housing recovery."
Realty Times obtained a copy of Lockhart's letter to McMillan, which was intended to respond to issues raised at the Realtors' annual convention in Orlando in November, where Lockhart spoke to two sessions. Lockhart did not disclose which company may soften its rule, but when one changes its standards, the other typically follows suit.
Lockhart addressed another issue of concern to investors and other buyers of condo units: The negative impacts of growing numbers of foreclosed units and bank-owned REO in condo projects.
Under current rules, Fannie and Freddie generally avoid loans in condominium developments where less than 51 percent of the units are owner-occupied. The problem is that both companies define REO and foreclosed units as non-owner-occupied, even though they are temporarily vacant and not owned by investors.
Lockhart said in his letter that "at least one" of the two corporations -- either Fannie or Freddie -- "is considering a clarification of the 51 percent (rule) that would exclude REO units from being counted as investor units … in the owner-occupancy ratio."
Lockhart offered no timetables for either of these key potential policy improvements, but investors may well see one or both changes within weeks.
At the very least, it's good news that the top executive regulating Fannie and Freddie recognizes the significant roles investors can play in helping the industry dig out of the current mortgage mess.

Six Signs That You're Ready To Buy!

By Michele Dawson
Figuring out whether you're ready to buy a house -- whether you're a renter or are aiming to move up or size down -- can be a daunting task. But there are signs that will indicate whether you're ready to take the buying plunge.
If you are thinking about buying, you're not alone.
David Lereah, the National Association of Realtor's chief economist, said the housing market has reached a new plateau. "Over the last few years, it's become apparent that the level of home sales will generally remain at higher levels than what was common in the mid-1990s," he said. "The fundamental change is a growing population with a rising number of households entering the age in which people typically buy their first home. In short, we have the need, desire and ability for people to buy homes."

So are you ready to make the move? You might be if you:
Are familiar with the market. If you've been paying attention to how much houses are listed for in the neighborhoods you're eyeing and have a realistic view of how much a house will cost you, you're in good shape. But if you're dreaming about that big corner house with no clue about it's asking price, you may want to spend some more time becoming familiar with the market and how much houses are going for.

Have the money for a down payment and closing costs (paid for by Hartland Homes). The down payment is a percentage of the value of the property. Freddie Mac says the percentage will be determined by the type of mortgage you select. Down payments usually range from 3 to 20 percent of the property value. Also, you may be required to have Private Mortgage Insurance (PMI or MI) if your down payment is less than 20 percent. Freddie Mac says that as a general guide, your monthly mortgage payment should be less than or equal to a percentage of your income, usually about a quarter of your gross monthly income. Also, your income, debt and credit history go into determining how much you can borrow. As a general rule, your debt -credit card bills, car loans, housing expenses, alimony and child support -- should not be more than about 30 to 40 percent of your gross income.

Know what additional expenses will come with owning a home. This includes homeowners insurance, utility bills, maintenance costs -- roofing, plumbing, heating and cooling.
Have your credit in good shape and make sure your credit report is accurate. Potential lenders will view your credit history -- how much debt you've accrued, how many accounts you have open, whether your payments are made on time, etc. -- to determine whether they'll give you a loan. You should get a report from each of the three credit reporting companies: Equifax, Experian, and Trans Union.

You haven't made any recent major purchases, particularly a vehicle. If you do, you may have a harder time getting a loan -- or it could potentially lower the amount you'll be approved for.
Once you decide you're ready, you'll need to be prepared to move quickly if you're aiming to buy in a sellers' market.

The next steps involve calling a Hartland Homes agent and getting prequalified for a mortgage loan. This way you'll know if you can get approved and how much you can spend on a house. It also puts you in a stronger position when you ultimately make an offer on a house.

Planning For Your Future

What you need to know about real-estate investing

By Dave Kansas

Investing in real estate is a key part of any investor's financial planning. For most of us, our homes are a big part of our net worth. And as we grow older, we build equity in our homes that can help fund our children's college or our own retirement. Here, we'll take a look at investing in our private residences, in vacation houses and in income or rental properties.

Our Homes
Owning a home comes with tax advantages. For instance, interest paid on mortgage is tax-deductible. And in some cases, home improvements can provide tax advantages. Selling a home also has some tax advantages. If you are single and have lived in your primary residence for two years, the first $250,000 of profits from the sale of the house are tax-free. If you're married, the exemption is $500,000. And you can take that tax advantage once every five years.

Second Homes
Investors have some options about optimizing the purchase of a second home. They can use the residence as a personal property, in which case the interest payments are tax deductible. Under the tax code, taxpayers itemizing deductions can claim mortgage interest payment deductions on the first $1 million of debt incurred for the purchase of a first or second home. To qualify as a second home, an owner must use the residence for more than 14 days per year.

The other option is to rent the property when you're not using it. If you rent for fewer than 14 days, you can still qualify for the personal home deduction. If you rent for more than 14 days, the tax treatments change, because now your second home is considered an investment property. Expenses such as mortgage interest and maintenance are divided between personal and investment use, proportional to the number of days of rental use and actual use. The expenses counted as investment are deductible; the portion allocated for personal use, including mortgage interest, is not deductible, because an investment property is not considered a personal second home.

Income Properties
Investing in income property is riskier than buying a second home, because rather than having a place to visit on the weekends, an income property is purchased to deliver, well, income. A two-family home, called a "duplex" in some parts of the country, may sound easy to rent and maintain. But if one unit is empty, 50% of your rental income isn't coming in that month. And that rental income is usually aimed at paying off a mortgage used to purchase the income property. Having a 100-unit building makes it less likely that you'll face a 50% vacancy rate, but even a 10% vacancy rate means you are trying to rent out 10 units, which can take a lot of time. Investing in income property sounds glamorous, especially when you run the numbers with full vacancy rates and no turnover. But pipes break, people move out and the roof sometimes needs replacing. The landlord of an income property has to deal with all these headaches. Landlords who have a lot of money can hire other people to handle these things, but most of us investing in real estate don't start with such full pockets.

Valuing an income property is more complex than valuing a residence. When you buy a residence, you are calculating your ability to pay a mortgage out of your own earnings. When you buy an income property, you're calculating how the income (rents) will help pay the mortgage.

So how to value an income property? An income property has an annual net operating income, or NOI. This is a figure of rental income less anticipated vacancies, maintenance and other expenses, not including interest payments or other debt related to the property. Most investors divide the NOI by something called the "cap rate" to come up with the proper value for one apartment in a complex. The cap rate relates to the expected annual rate of return on the property, and most income property buyers recommend using a cap rate of 9% (0.09) or 10% (0.10) when evaluating a property. So a property with an NOI of $100,000 and a cap rate of 9% would have a value of $1.1 million. This kind of simple calculation isn't perfect, but in a real-estate market that is increasingly frantic, doing even simple math can help you understand if you're overpaying for a property. Like investing in stocks, investing in real estate works best when you don't overpay. Cap rates vary depending on all kinds of local variants, such as the proximity of good schools, safety and local economic growth.