Fed Cuts Rate

The Federal Reserve cut the Fed rate from 4.5% to 4.25% on Tuesday. Many on Wall Street had hoped that the decrease would be more than the 25 basis points, however this is great news. Can the Fed keep reducing the rate? Only time will tell. If the losses by the major banks begin to end I think we will see a slowing of future Fed rate declines. Their chief concern is inflation. The constant lowering of rates will not alleviate those fears. With the looming real estate crunch what else can they do to spur the economy? So goes the wisdom. Part of the problem is Wall Street itself. If you look at Main Street USA for clues to the economy I think you get a different picture. I know this is anecdotal, but so are the economists so called models. How else could they be so drastically wrong on consumer spending for November? They predicted a .6% growth but when the numbers came out they were double the estimate. That is hardly close to the mark, if you ask me. The WSJ article this morning pointed to the fact that the economy is doing better than they (the economists) all thought.

So, on to my anecdotal experience. When I was in Kansas City last week, I went out for dinner on a Monday evening. The parking lots were full, the restaurant was 1/2 full, while most of the other eating establishments were packed. That was a Monday night in Kansas City! Now think about all the other cities around the country that were experiencing that same effect. The big banks may be feeling the pinch from their greedy money grabs with SIV's and CDO's and got caught with their collective pants down, but the average American isn't feeling the same pain. I think the reason that most of this is so sensational is that these are the 'elite' banks and they made several bad calculations. The media has pounced on this like a rabid dog. I realize that parts of the country are in turmoil, but the Midwest has done very well despite the zealous appetite of the newshounds to pronounce death to real estate every waking moment.

Guess what guys and gals at NBC, CBS and ABC? Average Americans are going about the business of buying and selling homes without giving into the hysteria and hype that you are selling. After all the news business is a business. Let's not forget that little point.

Interesting Interest Rates

Will a lowering of interest rates spur housing activity? That is the million dollar question. While many of the potential home buyers out there waiting for the other shoe to drop (a national declaration that the real estate market has hit bottom) a word of caution. Some are waiting for the actual 'bottom' to occur, but the real problem is that we will not know when that day is since most of our data is historical. If one looks at the current interest rates compared to the history of rates since the 70's there are only a handful of times when the interest rates have been this low. What does that mean? It means that they will go up. They have to. The Fed is currently worried about the risk of inflation on our economy and raising interest rates is one of the tools that a concerned Fed can use to slow that monster. Lowering rates only encourages a higher risk of inflation. But with the housing slowdown reducing rates seems to be the effective tool for the moment to spur activity in the housing sector. Herein lies the rub. Buyers are waiting for that 'great low rate' and will probably miss it as the economy moves along. The good news for our real estate market is that we have not suffered like other parts of the country. We don't see the escalation of property values like California, Arizona or Florida. That does not mean that we have not seen our share of problems, but Wisconsin is doing well comparatively. With interest rates now below 6% and an ample inventory level I can not think of a better time to invest in Real Estate. A year from now some will be lamenting that they should have gotten into Real Estate. Oh well that is how it goes.