Fed steps in with both feet

The Federal Reserve cut the federal-funds rate by a half point to 4.75% and discount rate by a half point to 5.25%. This was a bigger cut than expected, and done in hopes of easing what has been a severely tightened credit market, with adverse effects across the economy but most significantly in the already reeling housing industry.
This can be a very positive boost for housing. It should ease rate increases for adjustable loans that are due to reset, as well as rates on new mortgages and other types of consumer debt. The stock market seems to like this also, with the Dow up 246, 267, 298, 336
on the news.
Assuming that mortgage rates will drop as a result, and with home prices already down in many parts of the country, this just might be the opportunity that buyers have been waiting for.
(I read that Hovanian homes had a blowout weekend sell-e-thon this past weekend, discounting their homes by as much as 25%. They ended up selling almost as many homes during the three day event as they did during the entire previous quarter) Money talks.

Comments

[Peter]

I have been looking to buy in the Foothills area for the past year. Sadly, sellers are very slow to reduce prices. It seems that the market, via a very large inventory of unsold houses, suggests that prices need to be MUCH lower.

Unfortunately realtors, with their seemingly constant happy talk, may be acting to make the necessary prices correction stretch out over a considerable time. The recent comment of Judy Lowe (Tucson Association of Realtors) that "Tucson has a unique real estate market that withstands many of the pressures seen on the national level" is typical.

Why can't realtors understand that a substantial quick price correction is better for the realtor profession than a slow adaption stretching out over several years?

[John Schneider]

Hi Peter,
I appreciate your comments on the state of the market here in the Foothills.
Here's what I know and what I think;
The inventory in the Foothills is at about 475 homes for sale as of today, larger than in recent "normal" markets by about 20%, but not huge, and with very little spec/investor inventory. Added to that increased inventory, sales are down about 14% overall in the Foothills, but that was before the mortgage crisis struck, and may show further decline as a result. Time will tell how that plays out, but now, to complicate things, we have the big Fed reduction to factor in, which may boost sales. Crystal ball, crystal ball.
Realtors, who represent home owners in the sale of their homes, while they have a say-so, and an influence over the list price and price reductions, they are not the final decision makers about price. They may or may not be the ones responsible for the list price, and for stretching out the price corrections over a considerable time, as you say. In a declining market, you need to stay ahead of the drop in prices, and most home owners flat-out refuse to do that - they're looking at where the
market has been, rather than where it's headed. But it's also true that making big price reductions, the kind that call for a crystal ball, might put you too far ahead of the market, leaving money on the table. Hindsight's wonderful, but tell me you knew where the market was going to be today, 4 months ago. For a Realtor it would be much easier, and more profitable, to list a home at a real 'priced to sell' price than to dicker with incremental reductions over a long period of time, and in the end, not sell the home.
But they're trying to sell the house for the most money for their client, and please the home owner too, not such an unreasonable thing to do. They realize that if they don't list the house at the price that the homeowner demands, someone else will, so why should they pass up the opportunity, however slim, to try and sell that home. Maybe not the smartest thing to do, but not totally unreasonable either.
It's also true that the ranks of Realtors have swelled in the last few years, with every tom, dick and harriet getting into
the biz. Many of them don't know, haven't a clue, or don't care. They just want the listing. yahoo. OR, they have an understanding, or they hope they'll have an understanding some time in the future, that the seller will come to his/her senses and reduce the price.
If you're referring the the drastic price reductions by Hovanian this past weekend, when you say, Why can't realtors understand that a substantial quick price correction is ... Please remember that Hovanian has gone through more than their share of drip by drip price reductions and may now be at the point of 'fish or cut bait. They run a business, they sell homes for a living. They don't have an emotional connection to the homes that they are trying to sell, or the benefit of living in them while they're for sale. It's strictly a business. Home owners come at the sale of their home from different motivations. It's not a business to them. They may be willing to sell only if they can get their price, however outlandish it may be,or they may really need to sell because of some change in their life situation, but not be in tune with, or fefuse to face, where the market is, and where it's headed.
As for Judy Lowe's comments on the state of the market, I can't really comment, I don't know how or why she's arrived at those conclusions. But keep in mind that her comments are about the Greater Tucson Metro area, not about the Foothills. And maybe, looking at what's happening in parts
of Florida, in Vegas, in much of California, and in our big brother just north of here, Phoenix, she concludes that the situation in Tucson is just a blip on the butt of the bubble charts. Not so unreasonable, particularly when you apply that to the Foothills, which has not, and will not, have the mass speculative building, and investor participation that has occurred elsewhwere in Tucson, and in those other formerly hot markets.