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First Time Buyers Are More Optimistic On Home Ownership
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The National Association of Realtors (NAR) have released a study which shows first-time buyers have risen in market share and plan to own their homes longer than other buyers in previous surveys.
According to the NAR study the average age of firs-time buyers was 30 and the median income was $60,600. The typical first-time buyer purchased a home costing $165,000 and plans to stay in that home for 10 years.
The average down payment by first-time buyers was 4 per cent of the property price and the number purchasing without a deposit declined from 45 per cent in 2007 to 34 per cent in this research of first time buyers who made a down payment, 69 per cent used savings and 26 per cent received a gift from a friend or relative, typically from their parents.
Lawrence Yun, chief economist at NAR said,
“First time buyers are much more flexible in entering the market because they aren’t concerned about selling an existing home.
“Given low home prices, plentiful supply and affordable interest rates, it’s been an optimal time for entry-level buyers with a long term view.
“The study covers transactions through the middle of 2008, so we can assume the down payment numbers have shifted recently because credit tightened and no-down payment loans all but disappeared around the close of the survey.
“Considering the temporary first-time buyer tax credit and improvements to the FHA loan program, we expect stronger entry-level activity as the floor of credit improves- that, in turn, should free more existing owners to make a trade in 2009.”
The National Association of Realtors is America’s largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.
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The Federal Reserve Lowers Interest Rates By 0.5%
The Federal Reserve, acting in coordination with other global central banking authorities, cut a key US interest rate by half a percentage point on Wednesday to steady a teetering economy. The Fed reduced its key rate from 2 percent to 1.5 percent.
In Europe, which also has been hard hit by the financial crisis, the Bank of England cut its rate by half a point to 4.5 percent, while the European Central Bank sliced its rate to 3.75 percent.
Other central banks also taking part include the banks of Canada, Sweden, and Switzerland. China also cut its key interest rates for a second time in less than one month to stimulate slowing economic growth amid the global credit crisis.
Fed Chairman Ben Bernanke and his colleagues ratcheted down their key rate by 0.5 percentage point to 1.5 percent. The action revives the central bank’s rate-cutting campaign which had been halted in June out of concerns that those low rates would worsen inflation. Since then, however, economic and financial conditions have dangerously deteriorated, forcing the Fed to reverse course.
The fact that the Fed felt it couldn’t wait until its regularly scheduled meeting on Oct. 28-29, underscored the urgency of the situation.
The Fed took the action in a coordinated move with other central banks, which also were cutting their rates.
“The pace of economic activity has slowed markedly in recent months,” the Fed said “Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.”
Although inflation has been high, the Fed believes that the recent drop in energy prices and the weaker prospects for economic activity have reduced this threat to the economy. The Wednesday cuts come as markets in Asia and Europe sink amid waning confidence, Britain steps in to support banks, and Russia closes its main stock market for two days.
In addition, the Fed reduced its emergency lending rate to banks by half a percentage point to 1.75 percent. Given the intense credit crisis, banks have been ramping up their borrowing from the Fed’s emergency “discount” window.
In response, the prime lending rate for millions of borrowers will drop by a corresponding amount. The prime rate applies to certain credit cards, home equity lines of credit and other loans.
The hope was to spur nervous consumers and businesses to spend more freely again. They clamped down as housing, credit and financial problems intensified last month, throwing Wall Street into chaos. Many believe the country is on the brink of, or already in, its first recession since 2001.
The Fed’s last rate cut was in late April, capping one of the most aggressive rate-cutting campaigns in decades as it scrambled to shore up the faltering economy. After that, the Fed moved to the sidelines, holding rates steady as zooming food and energy prices during that period threatened to ignite inflation. In the past few months, energy prices have retreated from record highs reached in mid-July, giving the Fed more leeway to drop rates again.
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Renters Are Affected By Depressed Housing Market
In some areas renters are also experiencing problems as a result of the housing market crash. This has been quite a surprise for many people because they thought they were immune to the housing crash because they had not taken out a mortgage. At the time, this seemed to be a safe strategy. Many people assumed they were doing the safe thing by waiting to purchase a home until the housing market stabilized.
Many renters in some areas are quickly discovering they are not immune to housing problems after all. One of the most common problems is the fact that while renters do not have a mortgage on their property, their landlords do have a mortgage. If the landlord is not able to make their monthly mortgage payments due to rising interest rates and adjustable rate mortgages, the rental property could very well go into foreclosure.
When that happens, renters could find themselves facing eviction. In some cases, renters have discovered they had only 30 days to leave properties they had rented for quite some time. This has placed a tremendous amount of stress of many renters as they struggle to suddenly not only locate a new place to rent but also to come up with the cash necessary to make rental deposits.
In other cases renters have been affected by rapidly rising rental prices. Nationally, rental prices have begun to rise. Currently, the worse places to rent because of rising rental prices are San Francisco and New York. Seattle, San Jose and Cleveland are also showing signs of rising rental rates. San Bernardino and San Diego are not far behind, either.
One of the reasons that rents are rising in these locations is the fact that developers have not been able to construct as many new apartment buildings. In highly populous areas this has resulted in a large demand with little supply. When supply is not able to keep up with the demand, the natural result is raising prices. To make matters worse, rapidly increasing numbers of former homeowners are either selling their homes as a result of the housing crash or being forced out of their homes due to foreclosures. They must have someplace to go and renting is often the only viable option for these individuals and families, further increasing the demand for rentals.
Overall, the national vacancy rate for rentals has declined more than 10% in the last four years, clearly indicating that more people are renting properties today than they were right before the housing boom of 2005. Nationally, rents have also risen 14% over the same time period, as reported by the Census Bureau.
A number of factors have contributed to the rising rate of rental prices. One of the most important factors that have contributed to rising rental rates is the fact that more and more renters are waiting for the prices of homes to drop before they make the decision to purchase. Many renters are assuming that home prices have not yet hit the bottom. For these renters, it just simply does not make sense to buy right now. Quite simply, most renters do not want to find themselves in the same financial troubles that many homeowners have been subjected to in the last two years.
There is also the fact that even buyers who would be willing to buy right now are simply not able to do so because of difficulty in qualify for affordable mortgages. Following the collapse of the subprime market, many lenders have tightened restrictions and now requesting not only good credit but excellent credit. Requirements for larger down payments have also increased, making it increasingly difficult for first-time home buyers to realize their dreams of home ownership.
The health of the rental market is being eyed with some concern due to the fact that the rental market actually has a strong impact on other sectors. The construction of apartment buildings, for example, is frequently affected by the health of the rental market.
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Central Banks Are Taking Co-Ordinated Action To Shore-Up Mortgage Markets.
The Bank of England, US Federal Reserve, European Central Bank and Swiss National Bank will be involved.
The Bank of England will be lending an extra $30bn (£16bn) for a one week period, $10bn overnight and $40bn in three-month loans.
The Bank of England had been holding auctions of three-month loans once a month but will be holding them once a week for at least the next three weeks.
The central banks said that the extra cash was intended to help banks as they approach the end of the financial third quarter next week.
Banks have been turning to their central banks for funding because they have been struggling to borrow from each other as they would usually do.
One of the reasons they have been reluctant to lend to each other has been the fear of further bank failures and the news that Washington Mutual has become the biggest US bank to fail will do nothing to help that situation.
Banks will be able to use their mortgage books as security on the loans.
Separately, the Bank of Japan injected cash into the Tokyo money markets on Friday for the eighth trading day in a row.
It injected 1.5 trillion yen ($14bn; £8bn) into the market, although it later removed 300bn yen of that.
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