November 2009
Fed Pledges to Hold Rates Steady
November 4, 2009 by dbradley · Leave a Comment
Fed Again Pledges To Hold Rates At Record-Lows
Policymakers Hope Rates Will Encourage More Spending
POSTED: 12:08 am EST November 4, 2009
UPDATED: 5:17 pm EST November 4, 2009
The Fed said economic activity has “continued to pick up” and that the housing market has strengthened — a key ingredient for a sustained recovery.
But Fed Chairman Ben Bernanke and his colleagues warned that rising joblessness and tight credit for many people and companies could restrain the rebound in the months ahead.
“Economic activity is likely to remain weak for a time,” they said.
Against that backdrop, the Fed kept the target range for its bank lending rate at zero to 0.25 percent. And it made no major changes to a program to help drive down mortgage rates.
Commercial banks’ prime lending rate, used to peg rates on home equity loans, certain credit cards and other consumer loans, will remain about 3.25 percent, the lowest in decades.
Still, some credit card rates have risen over the past several months. In part, that reflects rate increases by lenders in response to escalating defaults on credit card loans. Lenders also pushed through increases before a new law clamping down on sudden rate hikes for credit card customers takes effect early next year.
On Capitol Hill, the House voted Wednesday to accelerate the enactment date of the new rules to protect consumers from many such surprise changes. Credit card companies would have to comply immediately, rather than starting in February, unless they agreed to freeze interest rates and fees. But the proposal’s chances in the Senate are considered dim.
The average rate nationwide on a variable-rate credit card is 11.5 percent, according to Bankrate.com. Lenders charge more and credit card customers pay rates higher than the prime because the debt they run up is riskier.
On Wall Street, the Dow Jones industrial average at first held onto an increase of more than 100 points after the Fed’s announcement. But stocks eventually gave up most of their gains in a late-day slump. It wasn’t clear how much of a role the Fed’s statement played. Some analysts noted that investors are nervous as the release of the government’s October jobs report on Friday approaches.
In normal times, the Fed controls only short-term rates. But after the financial crisis erupted, the Fed began buying longer-term Treasuries. Its purchases kept those rates lower than they’d otherwise be.
This is good news for borrowers with auto loans, some student loans, 15- and 30-year fixed-rate mortgages and some adjustable-rate mortgages. But it hurts savers and people dependent on fixed incomes who would normally be enjoying higher yields.
On Wednesday, the Fed stuck with its pledge to keep rates at “exceptionally low” levels for “an extended period.” Most analysts don’t think the Fed would begin to boost rates until next spring or summer.
Fed policymakers “believe they need to keep rates low to ensure that the recovery doesn’t falter,” said Joel Naroff of Naroff Economic Advisors.
The central bank hopes low rates will encourage consumers and businesses to boost spending, which would invigorate the recovery. The Fed signaled that it can continue to hold rates low because inflation is all but nonexistent.
The Fed has now entered a new phase: Managing the recovery rather than fighting the worst recession and financial crisis to hit the country since the Great Depression.
The economy began growing again last quarter for the first time in more than a year. But much of that growth came from government-supported spending on homes and cars. The strength and staying power of the recovery are uncertain, especially once government supports are removed.
In such a fragile recovery, a rate increase by the Fed is unlikely anytime soon, said Chris Rupkey, an economist at the Bank of Tokyo-Mitsubishi.
“Growth does not mean a rate hike,” Rupkey said.
As with past rebounds, the budding recovery won’t likely stop the unemployment rate from rising. The rate, now at a 26-year high of 9.8 percent, is expected to hit 9.9 percent on Friday, when the government releases the unemployment report for October. The jobless rate could rise as high as 10.5 percent around the middle of next year before declining, analysts said.
At some point, once the recovery is firmly rooted, the Fed is likely to start signaling that higher rates are coming. One hint of an eventual rate hike would be the Fed’s changing or dropping its pledge to hold rates at record-low levels for an “extended period.”
It’s a delicate task. Boosting rates and removing supports too soon could short-circuit the recovery. On the other hand, holding rates low and keeping government supports intact too long could unleash inflation.
Though it didn’t change a program to help drive down mortgage rates, the Fed did say it will trim its purchases of debt from Fannie Mae and Freddie Mac to $175 billion, from $200 billion, because the supply of that debt has declined.
At its previous meeting in late September, the Fed agreed to slow the pace of a $1.25 trillion program to buy mortgage securities from Fannie Mae and Freddie Mac. It decided to wrap up the purchases by the end of March instead of at year-end. So far, the Fed has bought $776 billion of the mortgage securities.
Its efforts to lower mortgage rates are paying off. Rates on 30-year loans averaged 5.03 percent, Freddie Mac reported last week. That’s down from 6.46 percent last year.
Though the Fed will slow its purchases of mortgage securities, rates for home loans should remain low — in the 5 percent range– as long as the purchases continue, analysts say.
Copyright 2009 by The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Retirement Alert
November 13, 2009 by dbradley · Leave a Comment
Retirement Alert: Let the Downsizing Begin
Friday, November 13, 2009provided by
New home buyer credit is a boon for boomers and retirees looking to move or trade down.
For boomers and retirees, the big news is this: The home buyer credit extension President Obama signed into law last Friday inserts them into the credit bonanza too.
The original $8,000 credit, which was set to expire Nov. 30, was available only to first-time home buyers and those who hadn’t owned a home during the three years prior to closing on a new house.
But the new law adds a $6,500 credit for “longtime residents of the same home,” making it a boon for retirees and those nearing retirement who want to trade down to smaller homes or perhaps move to a sunnier locale.
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Both the $8,000 and $6,500 versions of the credit are refundable–meaning if you don’t owe that much in taxes, you get a check back from Uncle Sam.
“It’s a windfall for those already set on downsizing,” marvels Timothy W. Wyman, a financial planner with the Center for Financial Planning in Southfield, Mich.
Even if you’re not set on downsizing, it’s something to consider if you’re nearing retirement. Recent research suggests that the happiest retirees are those who move to new homes while remaining in their longtime communities.
To claim either the $8,000 or $6,500 version of the credit, you must close on a new home, or be locked into a contract to close on one, before May 1, 2010. The closing itself must occur before July 1, 2010.
The new law still gives first-time home buyers a more generous credit: 10% of the purchase price of the new home up to $8,000. But taxpayers who have lived in their olds home for five out of the eight years prior to closing on a new one, can claim 10% of the purchase price on a new home, up to $6,500.
That could help downsizers on both ends–their new smaller digs will snag them the $6,500 credit and prospective buyers of their old homes are more likely to qualify for a credit too. After all, if an older couple is downsizing, they’re probably not selling a starter home. So prospective buyers are likely to be trading up from an existing residence themselves.
Congress did put some limits on this. Under the new law, homes that sell for more than $800,000 won’t qualify. (Previously, they did.) But outside of a few of the priciest markets, that shouldn’t exclude too many properties. The national median existing-home price for all housing types was $174,900 in September, which is 8.5% lower than September 2008, according to the National Association of Realtors. Of the 4 million properties for sale on Realtor.com, only 5% are listed at $800,000 or more.
As with the earlier version of the credit, there are income limits. But they are much higher than under the old law. A single with modified adjusted gross income of up to $125,000 can qualify for the full credit. That’s up from $75,000 under the old law. For couples filing jointly the full credit is available for MAGI of up to $225,000, compared with $150,000 under the old law. The credit then phases out over the next $20,000 of income for either singles or couples. The new higher income limits also makes it more likely that potential buyers–and pre-retirees themselves–will qualify to claim a credit.
Importantly, there is no requirement that the new home be more expensive or bigger than the old one. That makes the credit a good fit for folks downsizing into smaller homes for retirement. There is also no requirement that you sell your old home to claim a buyer’s credit.
So some retirees might want to rent out their old homes–if they don’t like the price they can get for them. But if you take this route, keep track of the rule that allows a taxpayer to exclude $250,000 (or $500,000 per couple) of capital gains from tax when selling a principal residence, provided they’ve lived in that residence for two of the past five years. This provision generally means that if you have gains in your house, you won’t want to rent it out for more than a few years.
George Jones, a senior tax analyst with tax publisher CCH, a Wolters Kluwer business, has a warning for seniors considering moving into retirement communities which include assisted living services. Review the contract you’re signing carefully: If you’re not getting outright ownership of your living unit, it may not count as a new home purchase for purposes of claiming the credit.
Clint Stretch, managing principal of tax policy with Deloitte Tax offers another caution: If you’ll have taxable gain on the house you sell, that will be added to your other income and could give you too much income to claim the credit on the purchase of a new home. (Remember, an individual can exclude $250,000 of capital gains on the sale of a primary residence and a couple $500,000, so you’ll only have taxable income if your gains are greater than that.)
Fortunately, for those in the know, there’s often a way around the trap Stretch flags. You can claim the credit for the year before you sell your house. That means, for example, that if the capital gain from the sale of a house in February 2010 pushes your 2010 income above the limit, you can claim the credit for 2009 while reporting the gains for 2010. Got that? It may sound too good to be true, but the same trick was allowed under the original first-time home buyer credit. So first-time home buyers who purchased a house in 2009, were able to get quick refunds by claiming the credit on amended 2008 returns, based on their 2008 income.
In fact, in most cases it will make sense to claim the credit for a 2009 purchase on your 2008 return and the credit for a 2010 purchase on your 2009 return, even if this requires you to go back and amend the prior year’s return, because you’ll get the money faster, says Kaye Thomas, a tax lawyer who offers advice at www.fairmark.com.
Since the credits are designed for buyers, not flippers, you may have to pay back the credit if you move within 36 months after your new purchase. (If you die, however, your heirs won’t have to pay it back.) More than 1.4 million taxpayers have claimed a home buyers credit so far and there have been enough abuses uncovered that Congress has tightened the rules this time around. For example, buyers under age 18 or buyers who are dependents of another taxpayer may not claim the credit and you must attach a copy of the settlement statement for your new home to the tax return for the year you buy.
In addition to retirees, military personnel stand to benefit from the new law. Military personnel serving outside the U.S. for at least 90 days in 2009 or 2010 get an additional year to claim the credit, and don’t have to pay back the credit if they are forced to sell because of service assignments. They get another break too: the exclusion from tax of any payments to compensate them for loss in their home values due to base closures.
November 27, 2009 by dbradley · Leave a Comment
“Do Not Wait; the time will never be “just right.” Start where you stand, and work with whatever tools you may have at your command, and better tools will be found as you go along.”
Napoleon Hill 1883-1970, Author of Think and Grow Rich
SOW SEEDS IN THE SEASON OF FAILURE
November 28, 2009 by dbradley · Leave a Comment
People often handle life as they do bad weather. They while away the time waiting for it to stop.
Opportunity knocks all the time, but you’ve got to be ready for it. When your chance comes, you must have the equipment to take advantage of it.
The race is not to the swift or the battle to the strong, for time and chance happen to everyone.
Take a second look at what appears to be someone’s “good luck.” You’ll find not luck but preparation, planning and success-producing thinking.
When you’re prepared for opportunity, your chance for success is sure to come. The season of failure is the best time for sowing the seeds of success.
Have an Awesome day!!
HAVE A PLAN AND COURAGE
November 30, 2009 by dbradley · Leave a Comment
You need a plan to find success. Wanting success isn’t sufficient enough to get it. You’ve got to ask yourself, “What am I going to do or give up, to get the things I want?”
You must bridge the gap between where you are now and where you want to be.
You cannot fail with a definite step by step plan, because each step you take will carry you along to the next step, like a track.
All you need is the plan, the road map, and the courage to press on to your destination.
You cannot get lost on a straight road.
Have an Awesome Day!
My name is David Bradley. I want to thank you for taking the time to visit my website, where I guarantee you'll find plenty of helpful information to assist you in purchasing your new home or refinancing your current mortgage. I am a Mortgage Consultant serving Dallas, Texas and the surrounding areas.