Fed Cuts Key Interest Rate by 3/4 of a Point

posted: Wednesday, March 19, 2008

WASHINGTON — The Federal Reserve reduced its benchmark interest rate by three-quarters of a percentage point on Tuesday, to 2.25 percent, a cut that was less than investors had been hoping for even though it was one of the deepest in Fed history.

Federal Reserve Statement While leaving the door open for additional rate cuts, policy makers also expressed growing concern about inflation. “Uncertainty about the inflation outlook has increased,” the central bank said. “It will be necessary to continue to monitor inflation developments carefully.”

The statement highlighted the growing problem that the Fed faces, between fighting an economic downturn and heading off new inflationary pressures that have become apparent in everything from energy and food prices to the falling value of the dollar. In a sign of the difficult choices the Fed faces, 2 of the 10 members of the policy-making Federal Open Market Committee dissented from the decision, favoring a smaller rate cut.

The two dissenters in Tuesday’s decision were Richard W. Fisher, president of the Dallas Fed, and Charles I. Plosser, president of the Philadelphia Fed, both of whom have been outspokenly hawkish about inflation issues in recent months. The Fed’s announcement was the culmination of an extraordinary series of actions over the last two weeks to prop up financial markets and the economy with a flood of cheaper money.

The Federal Reserve has reduced its overnight lending rate, the federal funds rate, six times since September, and did so twice in January alone.

With the latest reduction, the federal funds rate is far below the rate of inflation, meaning that the “real,” or inflation-adjusted, rate is below zero. It is also well below the European Central Bank’s benchmark interest rate of 4 percent or the Bank of England’s rate of 5.25 percent.

Investors had already assumed that the central bank would reduce the cost of borrowing by at least another three-quarters of a percent on Tuesday, but mounting worries about a meltdown in financial markets and the Fed’s emergence as lender of last resort had elevated expectations even higher.

Indeed, expectations about another deep cut in interest rates were so high that the central bank was at risk of setting off a new wave of panicky selling if it had announced a reduction of less than three-quarters of a percentage point. A lower federal funds usually leads to lower interest rates for mortgages, consumer loans and commercial borrowing. But Fed officials had been startled and frustrated that their previous rate reductions were doing nothing to lower the long-term interest rates that are most relevant for expanding a business or buying homes or cars. Part of the reason, analysts said, is that lower overnight interest rates have only limited relevance to the fundamental problem that is roiling the credit markets and the economy: the huge losses caused by the collapse of the housing bubble and the home loan environment that fed it.

Most analysts predict that housing prices, which have already fallen in most parts of the country, will drop much further before they hit bottom.

About eight million homeowners already owe more on their mortgage than their houses are currently worth, and foreclosure rates have soared over the last year.

The Fed’s problem is that its primary tools for stimulating growth — reductions in the cost of borrowing — do little to address the fears about bad loans. Many if not most private forecasters have concluded that the United States has probably entered a recession. The Labor Department has reported back-to-back declines in payroll employment in January and February.

And while the unemployment rate is still low at 4.8 percent, the number of private-sector jobs has declined for three months in a row — a pattern that has almost always been accompanied by a recession in recent decades.

With financial markets becoming dysfunctional, Fed officials have announced a series of steadily bigger lending programs for banks and cash-strapped Wall Street investment firms.

On Sunday, Fed officials agreed to lend up to $30 billion to JPMorgan Chase to engineer its takeover of Bear Stearns, a major Wall Street firm that was near collapse.

But Fed officials face increasingly contradictory pressures: inflation is rising even though growth has stalled. The federal funds rate is once again edging close to zero, at which point the central bank would have to resort to entirely new strategies if it wants to keep opening its monetary spigots. But a growing number of economists, including some Fed officials, contend that the housing bubble and bust stemmed at least in part from the central bank’s own decision to keep interest rates at rock-bottom lows from 2001 to the middle of 2004. Meanwhile, consumer prices, even after excluding the volatile prices of food and energy, are climbing faster than the central bank’s unofficial target of less than 2 percent a year. On Tuesday, the Labor Department said the core measure of the producer price index, which excludes volatile energy and food products, jumped 0.5 percent in February, the biggest gain since November 2006. The value of the dollar has plunged against most major currencies, a trend that pushes up the prices of imported goods and has contributed to the surging price of oil.

Government Announces Conforming Loan Limit Increases

posted: Friday, March 07, 2008

The Office of Federal Housing Enterprise Oversight (OFHEO) today announced it has temporarily increased limits on conforming loans offered by government-sponsored enterprises, Fannie Mae and Freddie Mac, from $417,000 to as high as $729,750 in fourteen counties in California for loans originated between July 1, 2007 and Dec. 31, 2008. Fannie and Freddie are reported to be working out new underwriting standards and expect to begin offering the new loans soon.

Also, on Wednesday, the government raised the conforming loan limit for mortgages guaranteed by the Federal Housing Administration, and has begun offering the maximum limit of $729,750 for 14 California counties, up from $362,790, for loans originated between now and Dec. 31, 2008.

The Fed’s economic stimulus package approved earlier this year called for temporary increases on conforming and FHA loan limits to allow troubled borrowers to refinance out of sub-prime loans and make it easier for many new buyers to qualify for mortgages in high-cost areas, particularly in California where home prices remain among the highest in the nation.

To view a list of the new FHA Mortgage Limits by county, go to:

FHA Loan Limits by County

What is Green Building?

posted: Saturday, March 01, 2008

Guest Writer: John Lee

Image courtesy: Luz V.

According to the EPA, our buildings use almost 40% of all energy, 12% of clean water, 68% of all electricity, and are responsible for almost 40% of all carbon dioxide emissions. By the sheer numbers, most agree that the greening of our buildings is critical.

Let me start by sharing that Green Building is not a fad that will pass in time, but something that will be to construction what recycling is to the trash business. Whether or not you believe the theories of climate change; living green is a good thing to do. The availability of green materials and knowledgeable trade professionals is growing in leaps and bounds. The once premium of practicing green, has been virtually eliminated. In other words, it is easier and more affordable to do the right thing.

So what is green building? The origins of green buildings go back centuries. However, let me share how modern-day builders define green building. My development company prescribes to a standard of green building referred to as LEED, which stands for Leadership in Energy and Environmental Design. LEED was created by the U.S. Green Building Council (or “USGBC”).

A LEED home can be described by three major characteristics:

1. Energy/Water Efficiency

This is quite simple. A green home will be efficient in its use of electricity, gas and water. Through energy efficient appliances, smart switches (i.e. timers and occupancy detectors), digital thermostats, super-efficient heating and cooling systems, water-efficient plumbing fixtures and landscaping, a home will not only be a good corporate citizen, but it will reduce utility bills.

2. Material Efficiency

Image courtesy: tandemracer

The first rule of green building is to build as small and conservatively as the design program allows. In other words, does a living room need to be 400 square feet, or can it get by with 350 square feet. Can a home be designed efficiently to eliminate non-used spaces such as hallways?

The next is to use materials sparingly. Use recycled material, and to recycle material that is being thrown away. Avoid waste or overuse. Also use materials that are easily renewable. For example, use fast-renewable flooring material such as cork or bamboo instead of wood from mature growth forests. Another smart idea is to use vendors that require shorter deliveries as opposed to shipping material across country on diesel trucks.

3. Healthy Home

This is the benefit that surprises most people, yet may be the most important. The indoor air quality of a green home is physically and chemically cleaner. This is achieved buy using super efficient air filters and cleaners and the eliminating the use of toxic paints and finishes.

It is important to that the home is built as a complete system, and that the builder understands how some features affect others. For example, a thermally tight home can be unhealthy due to re-circulating stale air. A fresh air exchange system will solve this problem by periodically replacing old air with fresh air.

What Can I Do To My Existing Home?

So you live in an home that you love and you have no intention of building a new home…no problem! There are many meaningful changes that you can make to your homes that will make it much greener. In future articles, my friends at Pence, Hawthorn Silver will allow me to share some of those ideas in my new column.

In meantime, enjoy and live life knowing that we live in a neighborhood where travelers come from around the globe to enjoy the beauty that we call home, everyday!

About the Writer:

John Lee is owner of the Lee Capital Companies that include a development company that focuses on green buildings, a construction company dedicated to green building and real estate investment company.

The Lee Capital Companies recently completed the first LEED green home in Santa Monica that was available for sale. Charles Pence represented the Lee Companies on this transaction as with three addition LEED green projects in Santa Monica and the Pacific Palisades.

Copyright 2008

Going Green

posted: Tuesday, January 22, 2008

Pence Hathorn Silver’s latest listing is creating quite a buzz. The brand new construction is not only beautiful, but it is a Green Home that is LEED registered. What is LEED for homes? LEED for homes is a green home rating system for ensuring that homes are designed and built to be energy and resource efficient and healthy for occupants. Green homes use less energy, water and natural resources; creates less waste; and is healthier for the people living inside. This is the first eco-friendly spec house being built in the north of Montana neighborhood of Santa Monica and it proves being green can be luxurious. The PHS team is very excited to partner up with the developer on such an important endeavor and they are using this as an opportunity to teach neighbors simple ways they can make their homes more green.

Below are a few tips from the U.S. Green Building Council and LEED® for Homes:

• Switch to Compact Fluorescent Light Bulbs
• Program Your Thermostat
• Plug Air Leaks
• Tune Up Your Heating and Cooling (HVAC) System
• Choose ENERGY STAR® Appliances
• Reduce Water Use

• Choose Green Products
• Buy Local
• Use Low-VOC Products
• Use Wood Alternatives or FSC-certified Wood
• Use Rapidly Renewable Flooring Materials

• Plant Trees to Provide Shade and Wind Protection for Your House
• Use Native Plantings
• Use Nontoxic Gardening Techniques

• Carpool, Use Public Transportation, Walk or Bike when possible
• Buy a High-efficiency Car.

For more information about LEED for Homes, visit the USGBC Web site

To make an appointment to see the LEED Registered Green House or to get more info, call Shann Silver @ (310) 458-4024.