Economists and others weigh in on the Fed’s statement accompanying its interest-rate decision.
Compiled by Phil Izzo
Offer your reactions in the comments section.
The Federal Open Market Committee decided today to keep its target range for the federal funds rate at 0 to 1/4 percent. The Committee continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.
Information received since the Committee met in December suggests that the economy has weakened further. Industrial production, housing starts, and employment have continued to decline steeply, as consumers and businesses have cut back spending. Furthermore, global demand appears to be slowing significantly. Conditions in some financial markets have improved, in part reflecting government efforts to provide liquidity and strengthen financial institutions; nevertheless, credit conditions for households and firms remain extremely tight. The Committee anticipates that a gradual recovery in economic activity will begin later this year, but the downside risks to that outlook are significant.
In light of the declines in the prices of energy and other commodities in recent months and the prospects for considerable economic slack, the Committee expects that inflation pressures will remain subdued in coming quarters. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.
The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. The focus of the Committee’s policy is to support the functioning of financial markets and stimulate the economy through open market operations and other measures that are likely to keep the size of the Federal Reserve’s balance sheet at a high level. The Federal Reserve continues to purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand the quantity of such purchases and the duration of the purchase program as conditions warrant. The Committee also is prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets. The Federal Reserve will be implementing the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Committee will continue to monitor carefully the size and composition of the Federal Reserve’s balance sheet in light of evolving financial market developments and to assess whether expansions of or modifications to lending facilities would serve to further support credit markets and economic activity and help to preserve price stability.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Dennis P. Lockhart; Kevin M. Warsh; and Janet L. Yellen. Voting against was Jeffrey M. Lacker, who preferred to expand the monetary base at this time by purchasing U.S. Treasury securities rather than through targeted credit programs.
Parsing the Fed: See how the statement changed
Dawn Wotapka reports:
Just in time for the spring selling season, home builders are unveiling mega-deals to attract buyers who may be waiting to see how low the market goes or more enticed by bargain-priced foreclosures. (Builders Offer Delayed Payments, Low Rates, Layoff Insurance)
Hawthorn Woods Country Club in Hawthorn Woods, Ill. (Toll Brothers)
Last week, luxury builder Toll Brothers detailed a 3.99% fixed mortgage rate for 30 years on loans of $417,000 or less. The deal, with no points to the buyer, requires a credit score of 720 or above and a 20% down payment. Pulte Homes offers the same rate to qualified buyers in six markets: Minnesota, Denver, Chicago, Indianapolis, Michigan and Cleveland. Hovnanian Enterprises’s mortgage arm says it is poised to match it, possibly requiring as little as 5% down from those with strong credit scores.
Not to be outdone, Lennar Corp. recently rolled out a 3.875% fixed rate in a number of its 40-plus markets. That rate is one of — if not the — sector’s lowest numbers.
This latest of crop of deals extends beyond rock-bottom rates. For homes closing on or after May 1, Pulte will cover payments until 2010. The special is available in the same six markets, but can’t be combined with the 3.99% offer. And, as soon as this weekend, Hovnanian expects to have insurance to cover payments for some laid-off homeowners for up to six months. It costs buyers nothing.
“We hope this will give a little peace of mind†to jittery consumers, said Dan Klinger, president of K. Hovnanian American Mortgage.
Such creativity isn’t new, of course. Builders have long offered specials, even during better times. But, as prices take record tumbles and the financial crisis continues, these desperate companies are trying anything to strike a deal. They’ve shaved prices into the six figures, offered free gourmet kitchens, paid closing costs and even helped aspiring buyers spiffy up blemished credit reports to qualify for a loan or better rate. They’ve had little success, something unlikely to change now.
“I give them credit; they’re not just rolling over and playing dead,†said Robert Curran, Fitch Ratings’ lead home-building analyst. “They’re looking to distinguish themselves among their peers in a very, very tough market. It probably pulls [in] some incremental sales, but I think in the environment we’re in right now, it’s probably not going to make a big difference.â€
Readers, what, if anything, will draw you to the closing table?
A roundup of economic news from around the Web.
Compiled by Phil Izzo
Dawn Wotapka reports:
It’s a big week for home price data. Yesterday, the National Association of Realtors reported an unexpected rise in existing-home sales. Today the S&P/Case-Shiller home price index reported record rates of annual decline in 11 of 20 metro areas. Another survey released Monday also shows dramatic price erosion nationwide, this one from First American CoreLogic and its LoanPerformance Home Price Index, which tracks resales of single-family homes.
Since peaking in July of 2006, home prices have tumbled 18.5% to levels last seen in the spring of 2004. In November alone, CoreLogic reports a 10.2% year-over-year decline — with early numbers showing continued pain in December — the 10th straight month with declines above 10%.
Prices fell in 35 states, with California’s 26.9% decline leading the pack. Next came Nevada’s fall of nearly 23%, with almost 20% each in Arizona and Florida. Even so, November registered some annual single-digit appreciation, fueled by ho-hum markets that didn’t become bubbles during the boom. Upstate New York’s Binghamton and Plattsburgh dominated that list, followed by Cedar Rapids, Iowa, and Rocky Mount, N.C. Each saw gains above 6%.
Areas with the Highest Home Price Depreciation
| Area | 12 Month HPI Change % |
| Salinas Calif. | -30.04% |
| Vallejo-Fairfield Calif. | -29.35% |
| Merced Calif. | -29.25% |
| Modesto, Calif. | -29.25% |
| Stockton, Calif | -29.21% |
| Riverside-San Bernardino-Ontario, Calif. | -29.19% |
| Bakersfield, Calif. | -28.85% |
| El Centro, Calif. | -28.12% |
| Napa, Calif. | -28.02% |
| Miami-Miami Beach-Kendall Fla. | -27.84% |
Source: First American CoreLogic, LoanPerformance HPI, Single-Family Detached as of November 2008
Economists and others weigh in on the increase in existing-home sales amid the drop in prices for December.
Compiled by Phil Izzo
Sushil Cheema reports:
The National Association of Realtors today reported that home resales were up 6.5% in December from a month earlier, in part due to buyers scooping up distressed sales in many markets. Nationwide the median home price fell to $175,000 in December 2008 — a 15.3% drop from December 2007. (See “Home Resales Rise as Prices Tumble.) Here’s a look at what $175,000 gets you in a few different areas in the U.S., courtesy of Zillow.com.
This house at 304 Santa Rosa Avenue in Santa Rosa, Calif., sold for $175,000 on January 1. The 889-square-foot house has three bedrooms and two bathrooms. The median sales price in the West fell to $213,100 in December 2008, a 31.5% drop from December 2007.
This 1,624-square-foot house at 8135 Cameron Cay Ct. in New Port Richey, Fla., sold for $176,000 on December 20. Located on a 19,437-square-foot lot, it has three bedrooms and two bathrooms. In the South, the median price was $158,000 in December 2008.
This 1,758-square-foot house at 7521 Saint George Circle in Portage, Mich., sold for $175,450 on December 5. It has three bedrooms, two-and-a-half bathrooms. The median price in the Midwest was $140,800 in December 2008, an 11.4% drop from December 2007.
This property at 226 High Street in Peekskill, N.Y., sold for $175,000 on December 2. The 1,000-square-foot house has two bedrooms and one bathroom. In December 2008, the median price in the northeast fell 7.8% to $235,000 from December 2007.
A roundup of economic news from around the Web.
Compiled by Phil Izzo
President Barack Obama has asked his top advisers to brief him every morning on the condition of the economy, the White House said Thursday.
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| Obama will get daily briefings on the economy. (Landov) |
White House spokesman Robert Gibbs, speaking to reporters at his first official briefing since Obama took office, said the president’s economic team, led by National Economic Council Director Larry Summers, will walk him through the day’s economic news each morning. The president receives a similar daily intelligence briefing.
The first economic briefing occurred earlier Thursday and was attended by the president, Summers, Vice President Joe Biden, White House Chief of Staff Rahm Emanuel, Budget Director Peter Orszag, Domestic Policy Director Melody Barnes and Biden’s economic adviser Jared Bernstein.
It’s unclear if Obama’s Treasury Secretary will attend the sessions, once confirmed. The president’s nominee for the position, Tim Geithner, was approved by the Senate Finance Committee Thursday, clearing the way for full Senate confirmation.
Gibbs said Obama was “very pleased†with the Finance Committee’s vote.
The spokesman, addressed a jam-packed briefing room, offered few new details of the administration’s plans to revive the economy, saying that the White House is working as quickly as possible.
He declined to address the possibility of the administration creating a new bank to buy up toxic assets, leaving such announcements to the administration’s economic braintrust.
“I don’t want to get ahead of the economic team as to the best way forward to ensure economic stability,†Gibbs said. –Henry J. Pulizzi
The Senate Finance Committee approved the nomination of Timothy Geithner for Treasury secretary today, but not before mulling over 102 pages of written answers to questions.
At the end of Wednesday’s Senate Finance Committee hearing, Sen. Max Baucus announced that committee members would have until 5 p.m. (about three hours) to submit questions in writing for the Federal Reserve Bank of New York president. Mr. Geithner would have until 10 a.m. today to provide responses.
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| Geithner responds to senators’ questions yesterday. (Getty Images) |
The senators submitted 163 questions, with multiple parts for many of them. And the answers were in before 10 a.m. They’re posted online – 102 pages worth on the economy, tax evasion, Bear Stearns, the financial rescues and more. Many of the answers offer little detail but a pledge of “I look forward to working with you…†on the stated matter. Among the responses:
–Sudeep Reddy
