Why you should be paying attention to the housing market.
If you consider that the real estate market that has gapped down 7%- it is amazing what the implications have been:
* Around 100 billion in write downs by the banks
* A huge surge in foreclosures (over 60%)
* A shaky stock market
What is going to happen if we have a further drop?
The fact is that the fed is going to have to cut at least 50-75 basis points. The hope being that these lower rates will be passed on to business and consumers. Yet as the rates go lower the banks will not be passing this liquidity on. The banks need the money and at the same time they are going to be tightening their credit. They will not be passing this liquidity on. They will use it to strengthen their balance sheet.
Consider the following:30 year rates are now being quoted at just under 6%. However here is the rub- you need to have a credit score above 680 and 30% equity in your home. If you consider that home prices are going down and appraisers are being much more prudent in how they are apprising the values of homes, you can see how tough it is going to be for this liquidity to pass on to the consumer.
To the extent you can. Investors should be building up their cash positions and saving!!!