Dramatic Shift in Emphasis at the Fed

It looks like the Federal Reserve might finally get it: the risks of a recession overweight the risks of inflation. “The Fed has seemed peculiarly reluctant to reach this conclusion, although it was glaringly obvious to many economist on Wall Street and in the ivory towers of academia – and even among regular Joes in the coffee shops and malls of Main Street America,” writes Greg Robb in his Jan. 11 Capitol Report for MarketWatch. The Fed has cut interest rates by one percentage point over three consecutive meetings, bringing the federal funds rate down to 4.25%, but “the cuts seem pretty Scrooge-like,” Robb says. “And after each of the three cuts, the central bankers have sent financial markets the clear impression that their hearts were not in it.” A Jan. 10 speech by Fed Chairman Ben Bernanke “represents something of a sea-change at the central bank. In unusually blunt language for a central banker, Bernanke said the Fed is ready to take ‘substantive additional’ rate cuts to support growth and insure the risks of a sharp downturn.” Economists now believe that the Federal Open Market Committee is likely to cut rates by half a percentage point to 3.75% at its formal meeting on Jan 29 to 30, if not sooner. (www.marketwatch.com)
MarketWatch (1/11/08); Greg Robb

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Utah’s Sagging Home Market Takes Courage From Lower Mortgage Rates

The recent drop in mortgage rates couldn’t have come at a better time for Utah, which is struggling with a downturn in residential real estate. Tim Roush, of Veritas Funding in Murray, said the drop has not gone unnoticed, pointing out that refinance applications are up 40%. “This is such a great time to buy or refinance a house.” The beauty of the lower mortgage rates, he said, is that they should remain low — in the 5.5% to 6% range for a 30-year loan — “for at least six months,” he said. Lower mortgage rates are helping to address the two chief causes of the dip in the market — tighter lending standard for mortgage borrowers and a significant increase in home prices along the Wasatch Front that diminished housing affordability. Stephanie Jensen, of Logan, who struggled to buy a home last summer, had been watching mortgage rates for weeks hover around 6% when one day they dipped. She locked in on a 30-year loan at 5.34% in July before rates quickly drifted back up. “I’m now paying less each month for my mortgage than I was paying in rent,” she said. The lower rates can also help people with adjustable-rate loans that are resetting or already have reset by making it a bit easier for them to qualify for fixed-rate loans. (www.sltrib.com)
Salt Lake Tribune (1/10/08); Lesley Mitchell

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Home Builders Shrink Choices

Lennar Corp., the nation’s second largest home builder, is whittling down options and moving toward a one-faucet-fits-similar-price-points model, seeing standardization and simplification as tools in a cost-cutting drive aimed at saving millions of dollars and surviving the housing slump. Other home builders are taking similar steps. Beazer Homes USA says it reduced its carpet offerings by 85%. Pulte Homes Inc. cut back to 400 floor plans from more than 2,000, and Centex. Corp. cut its roughly 4,500 plans in half, with more reductions under way. With the market slow, construction is a logical place for penny pinching among big builders. Excluding the lot, the average single-family unit costs about $219,000 to build, according to NAHB. Cabinet and countertops eat up 5.7% of that total, while tiles and carpet command 5%. Windows cost nearly 3%, and appliances come in at 1.7%. The savings potential goes beyond simply substituting lower-quality kitchen cabinets or cheaper carpet. Limiting the number of faucet styles, for example, lets builders order earlier and negotiate bigger bulk discounts from suppliers. Cutting countertop choices reduces the risk of installing Colorado red granite when the buyer specified Imperial red. Reducing and simplifying floor plans requires fewer architects and fees, and it speeds production. Pulte projects typical savings of $10,000 to $15,000 per house. (www.wsj.com)
Wall Street Journal (1/9/08); Dawn Wotapka

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‘In’ Crowd Set to Put on the Dog

Built-in dog showers, non-smoking home owners’ associations and TVs in the bathroom are on Mark Nash’s list of what’s “in” for real estate in 2008, based on his annual survey of nearly 900 agents in the U.S. and Canada. According to the Chicago real estate agent, other items that should go mainstream in 2008 and cut across all price points include sizable downpayments (because of the mortgage crunch) and concealed kitchen cabinets. On the outs are: living rooms, McMansions that are long on size but short on quality; soaring ceilings; and moving to tried-and-true neighborhoods and towns, rather than “pioneer” locales that might have lesser resale value. (www.chicagotribune.com)
Chicago Tribune (1/6/08); Mary Umberger

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When Buying a Home, Men Figure Out Financing, Women Do the Rest

According to Doris Perlman, founder and president of Possibilities for Design, women control 80% of consumer purchases, direct 91% of housing decisions and guide 94% of home-furnishing choices. Perlman’s research has delineated many of the specific home features that are likely to particularly attract boomer women. Their shopping habits suggest that these customers are apt to be “circular, exploring and tactile” and “do not make linear decisions.” “Her needs for personal connection and security are key,” Perlman added. “Women don’t just buy a product; they join it.” Among Perlman’s observations on what will sway baby boomer women home interior shoppers and buyers: task lighting and natural light are of major importance to compensate for declining vision and to add drama; women buyers are looking for strong character in home design, such as cottages with a crisp and clean look, urban enclaves with rich colors and textures and calming and contemporary Asian influences; women who are 55 or older are cyber-savvy and use their computers for ordering and correspondence; women are attuned to colors, while men do not care as much. (www.hamptonroads.com)
Virginian-Pilot and Ledger-Star (1/5/-08); Tom Kelly

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Strict Immigration Law Rattles Okla. Businesses

In the wake of House Bill 1804, the Oklahoma Taxpayer and Citizen Protection Act of 2007, arguably the nation’s toughest state law targeting illegal immigrants, there have been widespread reports of vanishing employees and schoolchildren, suggesting that thousands of immigrants have left for neighboring states or their native countries. Cotton gins, hotels and home builders have all lost workers. Restaurant and grocery store owners complain of fewer customers. Some businesses and lawmakers are warning that the economic effects will hit consumers hard. Having a smaller pool of workers for certain jobs will cause delays and create competition among employers, leading them to raise wages and prices, says Randy Davis, president of the sprawling Greenleaf Nursery. Home builder Caleb McCaleb, who works in Oklahoma City and Edmond, says his framer lost 30 of his 80 workers, his painter lost 10 of 35 and his landscaper lost 15 of 40. That has put his homes three to four weeks behind schedule. “If we continue to lose workers, we are going to have to raise prices,” he says. Among other things, 1804 makes it a felony to transport or shelter illegal immigrants. Several national and statewide business groups say they are considering a lawsuit to challenge the law. “You’re basically putting employers in the middle of this fight,” says Jenna Hamilton of NAHB, one of the groups. (www.usatoday.com)
USA Today (1/10/08); Emily Bazar

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