Real Estate Information

MARKET RECAP

Up, up, and away – and thank goodness. The stock market soared on some very good news: Banks are beginning to make money. Beleaguered behemoth Citigroup said it will actually earn a profit this quarter, and so did almost-as-beleaguered Bank of America. They are recuperating so well, in fact, that both recently said to the feds, “Thanks for the money, but no thanks.” In response to the perception the banking sector could be turning the corner, the Dow Jones Industrial Average (which includes the aforementioned Citigroup and Bank of America) soared over 500 points.

Another reason the tide is turning for banks is more government officials and business people are turning against mark-to-market accounting, which requires that banks take hits on their troubled assets by marking these assets against perceived market value. The requirement can devastate balance sheets, and needlessly so. Here's why: Say you had bought rental property two years ago and you borrowed money to purchase your properties. The properties could be cash flowing positively, but their value will likely have dropped, and dropped enough that you would be underwater on the loans. If you were required to mark-to-market those properties on your balance sheet, you could appear to be insolvent, even though your properties are cash flowing positively.

It's frustrating for the banks because the system rests more on government guarantees than on its capital base. With these guarantees, banks are able to earn decent spreads above their cost of funds. Just give the banks some time, and they will earn their way out of their current predicament. Citigroup and Bank of America prove they already are.

A more profitable banking sector means the lending purse-strings should loosen even more. Indeed, we see that already occurring in mortgage lending, where money continues to be available at very good rates. Borrowers with better credit are still availing themselves of rates in the 5% to 5.5% range.

And let's not forget that the wind remains at home buyers' backs. Homebuilders are offering a plethora of incentives to move inventory (but that inventory is dwindling, so the incentives won't last forever). The foreclosure market also offers a wellspring of value. And that $8,000 buyer's credit? It's only available through December.

Industrial Production
(February)

1.0%
(Decrease)

Mon, March 16,
1:00 pm , et

10 Index

All Goods: 0.3% (Increase)
Core: 0.1% (Increase)

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