The confirmation of the weakness in the international stock market stunned investors and lifted expectations that the Federal Reserve would be forced to cut interest rates. After last week's miserable job scenario, the investors in treasury securities are very sure that the Federal Reserve is about to get on a sequence of federal funds rate cuts. They are particularly worried about the recent economic weakness that can be an attribute to the lack of business confidence more than weak-hearted consumers.
Experts believe that - It is not the consumer but the businesses that are frightened. It is clear that the consumer demand is holding up and helping the market to sustain the 2 percent of growth.
On the other hand, the loss of 4,000 jobs in the month of August, were the first drop in four years. This suggests that the Federal Reserve is behind the curve in lowering the rates. On this Mr. Peter Morici, a professor of business stream at the University of Maryland said. "There is fear out there. But we are probably going to see strong productivity because employers are unwilling to hire."
The return on 10-year Treasury notes plunged 14 basis points on the last week to trade at 4.37 per cent, a level where it never reached since late 2006. The credit crunch stays, with the institutional investors totally unwilling to buy all types of securities and the sub prime mortgage market remains a tragedy.
An economist analyzed that the rate of seizing property due to unpaid mortgage dues or installments has rose to a record in the second quarter, and even the payback default rates for prime borrowers rose to the levels that have been not seen after the 2001 recession.
The standard three month London interbank offered rate (Libor) was about 5.72 per cent late last week. The increase of 36 basis points during the past few weeks is its highest level after early 2001.
Libor generally determine the short-term borrowing costs for many companies around the world, as well as interest rates on adjustable rate mortgages in the country. It is believed that the rise in the Libor rates has caused rates on adjustable rate mortgages, to point even as the usual long term mortgage give ups have fallen.
The higher Libor rates also makes it less expectable that the banks will borrow from each other. This is considered as a problem and it shows the tightening of the monetary policy.
In the interim, the waiting game is over to the next week's Federal Reserve meeting. The main US economic data due this week include the trade shortage and the ABC news consumer confidence index today; The Mortgage Bankers Association's mortgage applications date tomorrow; initial jobless claims on Thursday; import prices, retail sales, industrial production, capacity utilization, business inventories etc on Friday.
The Canadian data due this week include housing starts, the new house price index and the international merchandise traded surplus tomorrow, industrial capacity utilization on Thursday and manufacturing shipments and labor productivity on Friday.
More and more consumers are recognizing that at least for right now they are better of financially renting than buying. This is certainly a departure from the past when most consumers realized that the best financial option would be to buy rather than rent so that their money would go toward creating equity in a home. Today that is no longer the case, however. While rents have continued to rise in many locations, consumers are still finding they are often able to rent for less money than what they would pay for a monthly mortgage payment on a comparable property. In some cases, renters are able to save between 40% and 50% by renting instead of buying. One of the reasons for this is that in some locations, property values rose quite steeply. Today, buyers who snatched up those homes without blinking have discovered they must now sell. The problem? They need to sell the homes at the prices at which they purchased them two years ago to recoup the balance they owe on the mortgage. Renters just are not willing to pay more money than a home is worth. Many renters who qualify for mortgages feel they cannot get enough home for their money, especially when they can rent a comparable or larger home for less cash. As a result of the shifting market, many experts are quick to point out that today the market is no longer a seller's market and it is not really a buyer's market either. Instead, it has become more of a renter's market. Renters are also holding off on buying because they don't believe house prices have reached their lowest point. Their main concern is whether the home they purchase today will be worth what they pay for it six months from now. They feel it it much more prudent to pay rent for a few more months and see where the housing market will go before buying a home. Other renters are concerned about the upcoming hurricane season. Few people have forgotten the hurricane season of two years ago that devastated many homes. In those areas, homeowners, especially those without insurance, have yet to recover. While some areas there is a deficit of rental properties, in others homeowners have recognized the prudency of waiting to sell their homes. They are reticent to sell their houses now when it seems wiser to wait and see when the market will stabilize or pick up. In some cases, homeowners are renting out their homes to the scads of renters waiting to take advantage of the opportunity. You even see rental signs on homes for sale. In these cases, renters accept the reality that the home must always be ready and available for showings, they still see the benefit of renting these homes as worth it. Investors who have been trying to flip homes have discovered that it makes more sense to rent out the properties for the short term instead of selling them. In some cases these flippers have no other options, as they can't sell their properties at even their more modest prices. In some cases, this means the investors are taking a loss, with negative cash flow. The situation has become so much of a problem that landlords in some focused markets are having to slash their rents in order generate a small amount of cash flow. These investors are discovering it is far better to rent right away at a loss than to wait several months to find a renter willing to pay the amount they need. Even these upside down landlords are finding that renting them is the safest and least expensive option, at least for now.
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