Commentary on the Real Estate Market as of 12/01/08
by Peter L. Zachary, MAI, MRICS
It seems like everyone wants part of the $700 billion bailout package approved by President Bush on October 3, 2008. The New York Times reported on October 28, 2008 that the White House is exploring a range of options for providing emergency financial help to the auto industry. On November 19, 2008, the New York Times front page article was entitled "Detroit Chiefs Plead for Aid, to Little Avail". The article stated "The heads of the Big Three automakers of Detroit pleaded on Tuesday for emergency government aid to stave off potential collapse, but after four hours of testimony, it appeared that they had not persuaded enough lawmakers to move quickly on a bailout. Apparently they were all speechless when asked what they were going to do with the $25 billion they are asking for."
On October 30, 2008, the New York Times front page article was "Layoffs Sweep From Wall Street to Across Region". The article stated "A broad array of businesses across the region have begun eliminating jobs by the thousands as the pain of the financial crisis spreads well beyond Wall Street". The article continues that companies like Yahoo, American Express, Time, Inc. and Swiss Cargo Services at Kennedy Airport said they are preparing to layoff employees. "Economists and labor-market analysts predict the cuts will be part of a large wave of pink slips that are expected to drive up the city’s unemployment rate".
The November 6, 2008 Business Day section of the New York Times stated, "Wall Street pay is expected to plummet". The article states the bonuses for top executives would plunge by 70% and by 20 to 35% across the industry. There goes the high end real estate market.
"Buying Binge Slams to a Halt" was the front page story in the November 12, 2008 issue of the New York Times. In the aftermath of the apparent recovery of the banking systems credit crisis, Americans are doing a lot less consuming. "Sales of new vehicles are down 32% in the 3rd quarter and consumer spending appears likely to fall next year for the first time since 1980 and perhaps by the largest amount since 1942".
On November 22, 2008, the New York Times reported that President elect Barack Obama has chosen Senator Hilary Rodham Clinton to be Secretary of State and Timothy F. Geithner, President of the Federal Reserve of New York, to be his Treasury Secretary. I think the country and the world are happy about this. On November 23, 2008, the New York Times reports, "Obama Vows Swift Action Plan Seeks to Secure 2.5 Million Jobs and Funnel Cash Into Infrastructure". This article stated President elect Obama "would pursue a far more ambitious plan of spending and tax cuts than anything he outlined on the campaign trail, setting the tone for a recovery effort that could absorb and define much of his term."
On November 26, 2008, the front page of the New York Times had its lead article titled, "US Plans $800 Billion in Lending to Ease Crisis". There will be $600 billion for the real estate market where the US would spend $100 billion to buy the debt of Fannie Mae, Freddie Mac and Ginnie Mae and $500 billion to buy mortgage backed debt from these 3 entities. The US would spend $200 billion to support Consumer Credit and small business like all to loans, student loans, credit card loans and business loans guaranteed by the Small Business Administration.
As you can see, it seems like there is a new or modified bailout plan being proposed every few weeks. In the interim, downward pressure on housing prices continue.
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