Ana Connell

• A couple of things are clear, many people have lost confidence in the financial system and this is not just a U.S. problem as the aftermath of this financial crisis is being felt around the world.

• Federal Reserve Chairman Ben Bernanke brokered the broadest coordinated interest rate cut in history, among all of the central banks. Yesterday, the Fed, the European Central Bank, the Bank of England, Bank of Canada and Sweden's Riksbank reduced their benchmark rates by half a percentage point. The Bank of Japan and Switzerland also supported the action and China's central bank cut it's key rate by .27 percentage point.

• The stock market has reacted sharply to economic and credit data this week and ended today at 8579, down 679 points on the day. We have not seen these levels since 2003.

• The giant safety net that the Fed and Treasury have initiated has helped to keep the financial system afloat, but it has not restored confidence nor has it enabled US banks to start lending to each other again. Banks in Europe, as evidenced by the extremely high Libor rate, remain on the defensive and continue to hold on to cash. The Libor rate is at it's highest level this year.

Why should you care about the Libor rate?

Some business loans and many adjustable rate mortgages in the US are tied to the Libor rate, the rise will probably put added stresses on consumers and could offset some of the easing by the Fed over the past year if the rate stays high. Questions to ponder:

• Currently the nominal value of all delinquent US mortgages, as of the 2nd quarter, was put at $680 billion by High Frequency Economics. If this number is accurate, will the $700 billion bailout or rescue plan do enough to alleviate this problem. Additionally there is enough anecdotal evidence to suggest that this number will be rising over the next year. If you look at the reaction of the stock market this week, the answer to that question may be negative.

• It's clear we're in a recession, the big question is how long will we stay there and how long will it take the credit markets to unfreeze?

I think many things need to happen for the economy to turn around, but key elements include shoring up the unemployment situation as well as our credit markets. How quickly this will happen as well as cleaning up our mortgage situation will determine how fast we come out of the current quagmire.

As far as the local real estate market, we'll have to see how the local economy is impacted by unemployment and the current credit squeeze as well as the number of foreclosures coming online over the next few months.

Burbank Closed Sales for September 2008

Month to month average sale price from August to September 2008 is down $14,258, year over year, average sale prices are down by $127,253 or 19%.

Average days on market, year over year are up 23 days.

Average square footage is down by 8% year over year.

Most notably number of sold properties is down 34% from August 2008 and down 22% from September 2007.

These numbers are reflecting several factors……

• More foreclosures have been coming online, loans are hard to come by in the current credit environment.

• Mortgage applications have been down, despite lower rates, but mainly due the seizing up of the credit markets.

It's clear that the optimism from last Friday has quickly given way to a no confidence vote for Treasury Secretary Paulson's plan.

Today's highlights:

• The Dow was down by 372.75 points but the big story is gold rising by $40 and oil rising by $15 per barrel to close at $120.
• Morgan Stanley has received approval to become a bank holding company and talks between them and Wachovia are on hold.
• Goldman Sachs received approval to become a bank holding company.

Giving Goldman and Morgan bank status basically allows them access to money through deposits, which would help manitain their liquidity needs.

Secretary Paulson and Fed Chairman Bernanke will be testifying before the Senate Banking Committee tomorrow. Here are some details of the plan for the plan, as I know it:

• Secretary Paulson is asking for $700 billion
  
• Original plan was to purchase non performing mortgage securities, but that appears to have changed to any type of non performing asset. It's unclear how they would determine if the price that they are paying for these assets is fair. In theory the banks would submit the assets with a price, but this approach leads to many more questions.
• Foreign banks can also participate, if they have U.S. operations......ummmmm.
• Increases the debt ceiling to $11.3 trillion dollars since we'll have to issue debt to pay for all of this.
• The infrastructure for this plan has not been outlined.
• No real plan to help main street, just wall street.

It's clear the markets are not happy with this plan and there are worries about the impacts to our financial system. More details will have to surface and hopefully Congress will not approve a hastily conceived plan without thought to the longer term impacts. More to come as details unfold.

Existing home sales and new home sales are due out later this week.

Living in Southern California for over 35 years has made me somewhat complacent about earthquakes, but I know first hand how devastating they can be and at the very least I keep a good supply of bottled water in the house, just in case. But I know I need to do more.

Just as most people, I get busy with other projects, work, family and at the end of the day, feel unprepared for a catastrophic event.

On November 13th, 10am, the the Great Southern California ShakeOut will take place. This drill, quite possibly the largest earthquake preparedness exercise in U.S. history, includes businesses, hospitals,schools, non-profits, neighborhood councils, basically anyone who would like to participate.

The main purpose is to create awareness and to see how our resources would fare in responding to a magnitude 7.8 quake. If you remember the Northridge quake you saw the devastation and the damage a magnitude 6.7 earthquake can inflict.

They say there is a 67% chance that the Los Angeles area will have a magnitude 6.7 quake, or larger, in the next 30 years. Those percentages should be a wake up call for the many who are unprepared.

If you would like to stock up on emergency supplies, check out SOS Survival Products.

• The Federal Reserve left rates unchanged today, at 2% for the key benchmark, a surprise to some, but while they noted that the financial markets are under more strain with the credit crisis,they cited labor worries and inflation as their top concerns.  Providing liquidity for the markets is high on their list as well.
  

• Mortgage rates are averaging 5.93% for a 30 year loan.

•  Despite the talk that the government would not intervene  AIG was offered an $85 billion loan from the US government in return for an 80% stake in the company.

What does all this mean for real estate in the San Fernando Valley and Burbank?

For now we have lower mortgage rates but very tight lending standards which means that buyers will have to work harder in order to qualify for a loan and put more money down.

In the long run we need for the financial markets to finish the clean up process in order to help stabilize our housing markets.  Look for more foreclosures to come online over the next year and hopefully a return to a more normal housing market after next year.

Here are some numbers to consider:

In August of 2005 there were a total of 80 homes/condos sold with an average of 24 days on market for an average price of $636,630.

In August of 2008 there were a total of 60 homes/condos sold with an average of 60 days on market for an average price os $555,118. 

There are several things reflected in these numbers:

• Longer days on market
• More homes are selling in the lower price ranges
• Overall prices are down, but not as much as the average would seem to suggest