The drop in housing prices extends to the fourth month. After a five-month run-up in home prices starting last spring, prices have now fallen for four consecutive months – according to the S&P/Case-Shiller Home Price Index of 20 cities, a gauge of market values. In January, prices were down 0.4%, compared with December and have fallen 0.7% from a year earlier.
The government, in order to stabilize the decaying housing market, spent more than a trillion dollars buying assets and investing in mortgages securities. Whereas, the near-zero interest rate was also expected to push the housing market upwards. However, both gave out unsatisfactory results. Moreover, recent news of the government winding up its buying activities will create an adverse effect on the industry. However, there are no updates concerning a rise in interest rates.
Lower interest rates predict good progress for the economy as a whole, especially for borrowers who always hope for ‘inexpensive’ money. On the other hand, these low rates are terrible for savers, especially for retirees who want to convert their lifetime savings into lifetime income. It takes a surprisingly large amount of money to generate even a modest amount of recurring income.
People planning their retirement era are unwilling to invest in such annuities, so what do they do then? They make pensions. It gives them a fixed benefit regardless of changing interest rates, making it more valuable than the annuities.
The other side of the picture – no doubt pensions have a fixed yield, but the changing interest rate stimulates the inflation level, which in turn influences purchasing power and an individual’s average income. Low interest rates means more investments which in turn means more production and consequent demand for production. An increase of 0.79% (January 2010 – 2.63% and November 2009 – 1.84%) in inflation is clearly evident of this fact.
The conclusion – lower interest rates favor borrowers and the housing market as a whole. On the contrary, savings based earners are not getting much out of their investments. What do you suggest, what should such individuals do at this stage? How can the government stabilize the housing market along with increasing interest rates? Is there any other tool, apart from buying assets and mortgage securities?
Reference Links:
http://inflationdata.com/inflation/Inflation_Rate/CurrentInflation.asp
http://www.tradingeconomics.com/Economics/Inflation-CPI.aspx?Symbol=USD\
http://money.cnn.com/2010/03/30/real_estate/January_Case_Shiller/index.htm
http://money.cnn.com/2010/03/30/markets/thebuzz/index.htm
http://money.cnn.com/2010/03/29/news/economy/interest_rates.fortune/index.htm
The financial crunch gulped down a large number of companies, leaving many out of work and unable to pay debts. Many well known banks incurred large debts and huge liabilities, so large that even the Government was unable to give them a helping hand. Chances of getting a loan with a good credit standing plummeted down to somewhere near impossible, leaving no room for those who had their figures less than 650 at the Credit Ratings Scale.
The government’s mortgage relief plan, announced by President Barrack Obama a year ago, has helped only about 12 percent of the borrowers. Since its initiation, around 1 million homeowners started the process, but only 116,000 completed the application process and had their loan payments reduced permanently. More than 61,000 applications were rejected, either because the homeowners failed to make payments or didn’t return the necessary paperwork.