by Peter G. Miller
Are We Headed Toward Lower Interest Rates?
Peter G. Miller
OurBroker®
The past month has seen a huge decline in prices on Wall Street, but a bigger problem has been unsettling news from Main Street.
- Interested in a van or pick-up? The auto industry has a production surplus and a buyer shortage. DaimlerChrysler, developer of the van concept, suffered a third-quarter loss in the U.S. of $512 million, according to Reuters. All three auto makers saw sales slip in November. Meanwhile, tire re-calls have raised major safety and regulatory questions -- the type of questions which make consumers edgy.
- Notice all those empty parking spaces at the mall? Just how many shoes and shirts does anyone need? Gap, Inc., a retailing benchmark, says that in November same store sales were down 1 percent when compared with a year ago.
- As to computers, the warning by Gateway that it would miss analyst's earnings predictions by as much as 40 percent set off a flurry of selling in Wall Street's high-tech sector. Microsoft shares on Thursday fell by $7.69. Given that the software firm has 5.3 billion shares outstanding, investors lost equity worth almost $41 billion.
- Not to be outdone, existing home sales in October fell 3.9 percent when compared with last year, says the National Association of Realtors.
We need a little perspective here. The world as we know it is not coming to an end. There is no depression looming just ahead.
Instead, what's happening is well within the realm of reason. The U.S. economy has generally expanded for a decade. It's been a great ride, but there's no example of a national economy expanding forever. What has gone up is now coming down, but in no case are we going from streets of gold to dirt roads.
As an example, existing home sales were down somewhat in October -- but they were still humming along at an adjusted annual rate of 4.96 million units, a level that was unknown and unattainable just a few years ago.
The real issue is that we do not want good times followed by an economic collapse such as the one seen in Japan a decade ago.
Japan at the time was much admired because it had a terrific savings rate, wondrous levels of productivity, and microscopic interest levels. The Nikkei -- a measure of 225 leading Japanese stocks -- reached 38,915 on December 29, 1989. Today the Nikkei is around 14,500 and the Japanese economy has been in a funk for the past 10 years, in part because of poor government planning.
It's probable that the Federal Reserve will soon begin to reduce interest rates. Lower costs for money will make consumer purchases more attractive; more consumer purchases will help retailers, manufacturers, and thus job hunters. If the academic theories are correct, the economy can then settle down gently.
In terms of real estate, lower interest rates are traditionally seen as good news. However, the benefit of lower rates will be off-set at this time by fewer bonuses, less overtime, and reduced corporate profits. In many communities a buyer's market -- or at least a market with greater balance between buyers and sellers -- is likely to emerge in the coming year.
This is not a terrible situation. It doesn't mean that home sales will stop or that vast armies of people will start living in railroad camps. Instead, there will be a change from the good times seen in many markets during the past decade. Buyers are likely to find new concessions in the marketplace, sellers are apt to see lower rates of appreciation (or none in a few local markets), homes will probably be on the market longer, and super-hot markets will be inclined to cool.
Is any of this terrible? Not at all. We've been spoiled by an incredible run of good economics, now it's time for a dose of normality.
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Question Of The Week
Q Our mortgage is held by a private individual rather than a regular lender. We now want to pay off the debt, but our investor is out-of-state and will not come here for closing. What should we do?
A Speak with those who conduct closings in your area and ask if the paperwork can be signed out-of-state. There may be a requirement for the lender to sign before a notary, but otherwise it should be possible to pay-off the loan without any travel.
Weekly Resource
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Published: December 5, 2000
Use of this article without permission is a violation of federal copyright laws.
| Peter G. Miller, also known as OurBroker®, is the author of six real estate books -- including The Common-Sense Mortgage -- and is the original creator and host of America Online's Real Estate Center.
Peter's weekly columns appear in more than 100 newspapers nationwide, he is also published in a variety of other media outlets and he is a frequent speaker at national events and conventions. Peter welcomes your questions, comments, and news releases via e-mail at . |
