Looking at fourth down and goal with time running out, and having resorted to every trick in the playbook, including lending billions to help out the nation’s — and the world’s — struggling financial systems, Ben Bernanke and his team over at the Federal Open Market Committee tried a run up the middle one more time Wednesday, lowering the ever-popular federal funds rate by half a percent to 1 percent.

A huge rally on Wall Street the day before (almost 900 points) anticipated the cut, although some analysts were hoping for more than 50 basis points. More importantly, many are looking for this move to signal the lowering of mortgage rates to help out struggling homeowners trying desperately to stay in their homes.

In its official statement, the Federal Open Market Committee for the first time in many months did not cite the nation’s continuing “housing contraction” as one of the primary reasons for the cut.

This time the committee is citing a decline in consumer spending, slow economic activity overseas and “the intensification of financial market turmoil” as key concerns. AND, the committee seems to be patting itself on the back this time for all of its recent policy decisions, although it still admitted that “downside risks to growth remain.”

As The New York Times is reporting, the Commerce Dept. released its report on consumer spending this morning and the news is not good. Personal consumption for Q3 2008 fell at an annual rate of 3.1 percent, the biggest drop since 1980, when the economy was in a deep recession.

Jobs are being cut all over the country, people are losing their homes to foreclosure and credit card debt is out of control. All told, many analysts are already declaring that the American economy is now officially in a recession.

According to figures provided by the Federal Reserve, consumers in this country have charged up $900 billion in credit card debt. The Associated Press reported in BusinessWeek this week that the Financial Services Roundtable, a financial industry alliance, and the Consumer Federation of America have joined forces in asking federal regulators to do something to reduce consumer credit card debt by as much as 40 percent.

Between credit card debt and a full-blown mortgage crisis on its hands, the Fed is less worried about inflation at this juncture and more focused on the reluctance of banks to loan money, according to the Times.

Whether this is the Fed’s last hurrah before a new administration takes office in January or not remains to be seen. Still, the next president is going to inherit many problems, and a glut of foreclosures appears to be one of them.

Potential homebuyers and real estate investors looking for bargain properties will probably have at least all of 2009 and maybe even 2010 to shop around. There is obviously more pain to come before we see daylight at the end of this tunnel.

What do you think about the Fed’s latest move? Will it make a difference where you live in terms of reducing foreclosure activity? We’d like to hear your opinion.

There’s good news and bad news when it came to home prices nationally in August. Let’s start with the good news for a change.

The S&P/Case-Shiller Home Price Indices released yesterday showed that the acceleration of decline in home prices was only moderate in August. That’s the good news!

The bad news: the decline in home prices for both indices set new records in August. The S&P 10-City Composite Index showed a 17.7 percent annual decline versus a 16.6 percent annual decline for the 20-City Composite Index. That compares to July when the indexes were down 17.5 percent and 16.3 percent respectively.

“The 10-City Composite and the 20-City Composite reported record 12 month declines. Furthermore, for the fifth straight month, every region reported negative annual returns,” said David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s.

The biggest losers were the Sun Belt market. Phoenix and Las Vegas both reported annual declines exceeding 30 percent. Miami, San Francisco, Los Angeles and San Diego all recorded declines in excess of 25 percent.

On a monthly basis the only winners were Cleveland and Boston which both had barely positive results in August. The biggest decliner for the month was San Francisco.

As S&P is reporting, these broad-based declines established a trend in the first half of 2008 that has continued into the second half of the year. These are the kinds of trends that are most likely going to keep foreclosures front and center in the real estate marketplace through at least next year despite a slowdown in the rate of decline.

We’d be interested in whether you think these home price trends are long-term in your area or about to make a recovery.

Three prominent California economists painted a rocky road ahead for the California housing market. Speaking at the California Association of Realtors convention in Long Beach, Calif., Nancy Dayton Sidhu, Stuart Gabriel and Richard K. Green said the nation — and California — are in a recession that could last until the end of 2009.

“We have a very severe credit crunch going on,” said Sidhu, vice president and senior economist at the Kyser Center for Economic Research. “About 85 percent of banks have tightened their lending standards. This is an issue. That’s where the problems are in the economy.”

Sidhu forecasted that the recession would last through 2009, followed by a moderate recovery thereafter and economic expansion by 2010 or 2011.

Gabriel, a professor of finance and director of the Richard S. Ziman Center for Real Estate at UCLA, predicted that “we’re not going to have a Great Depression, but we are going to have a recession. The labor market will contract, causing consumer spending to contract.”

Gabriel predicted that California will be the first to emerge from the economic downturn. “California will see the up turn in housing before any other state,” Gabriel said.

The federal government’s rescue efforts could ease the financial markets, making it easier for borrowers to find loans, according to Richard K. Green, director of the Lusk Center for Real Estate Development at the University of Southern California.

“Banks don’t trust each other right now,” said Green. “They just don’t know what’s on their balance sheets. But I’m still very bullish on California. I’m far more optimistic this week than last week.”

Will the housing sector lead the nation — and California — out of the recession? What are your thoughts?

Free-market purists have to love the lead in The Washington Post story Friday about the real estate market in Prince William County, Va., a suburb of Washington, D.C.

"Freewheeling American capitalism may be falling out of fashion on Wall Street, but in the western suburbs of Northern Virginia, it is driving one of the greatest home-buying sprees the region has ever seen."

The story goes on to say that Prince William County experienced a 235 percent year-over-year increase in home sales in September, with 1,116 homes sold -- more than any other September on record.

Fans of laissez-faire capitalism have been cringing through waves of massive government interventions over the past few weeks, but can point to what is happening in Prince William County as an example of how a real estate market can recover without the giant, bumbling hand of government reaching down to help.

In fact the county's surge in sales is occurring before any of the legislation passed in Washington (just a few miles down the road and across the Potomac River) over the past few months has filtered down to local communities. Most of the provisions in the mammoth housing rescue bill passed in July -- including $4 billion to buy up foreclosed homes, of which Prince William County has been allocated more than $4 million -- did not take effect until Oct. 1. And the deus ex machina promised as a savior in the recent $700 billion bailout bill has not yet materialized.

Of course there are costs to a free-market recovery, primarily decimated home values and loss of home ownership. The county's median price is down 41 percent from a year ago, from $405,000 to $239,000, according to the Post story. And neighborhoods that once comprised primarily owner-occupied homes have transformed into more transient communities as foreclosed homes were bought up by investors and converted to rentals.

But according investor Chris James quoted in the story, "bargain-hunting investors are the best hope for stabilizing foreclosure-ravaged neighborhoods."

Author and Investor Lance Young, who has authored several eBooks on buying foreclosures, lives near Prince William County and said he's purchased "several REOs and other properties since April 2008. I am rocking and rolling properties out here in the D.C. area." (More from Young and other investors who are in full buying mode in the November issue of the Foreclosure News Report.)

So is this pattern in Prince William County evidence that the free market is still capable of a healthy and sustainable recovery, or is it a temporary uptick before things once again get worse? Do we need a bigger, more monolithic solution from Washington to truly solve the problem?

Speaking before a packed house at the California Association of Realtors Expo 2008 in Long Beach, Calif., Wednesday, chief economist Leslie Appleton-Young seemed a bit uneasy as she delivered her 2009 California Housing Market Forecast.

“I bet everybody wants to know what’s going to happen next year. Me too!,” Appleton-Young told an anxious crowd of Realtors. “There are so many wild cards out there. It’s a full deck. They’re things we don’t have control over.”

Economics is not an exact science, so it is no surprise that practitioners will many times hedge their bet, and even revise their projections mid-year to stay in pace with changes as they occur. Many economists will even qualify their presentations by adding something like, “…unless some unknown monumental event occurs to change everything.”

Can you really blame them?

So far, 2008 has been the year of monumental events, beginning with the bailout of Bear Stearns, followed by the Lehman Bros. bankruptcy, Merrill Lynch selling to Bank of America, the federal government buying into the secondary market with the changes at Fannie Mae and Freddie Mac, and a number of banks either going out of business, or merging with other banks. Plus, let’s not forget a $700 billion stimulus package by the federal government aimed mostly at helping out troubled financial institutions to get banks lending money once again.

“It is really history in the making,” Appleton-Young said.

Given all those factors, and the uncertainty left in the marketplace, it was no doubt difficult to come up with a forecast for 2009, but Appleton-Young and her staff at CAR did a very admirable, and thorough, job of it. Based on the historic data she presented, it appears as if California is set to come out the other side in pretty good shape, probably by the second half of 2009 if no other major events change the nation’s — and the state’s — financial landscape.

The 2009 forecast calls for a further decline in home prices, down 6 percent for the year following a 32 percent decline this year. Existing home sales are projected to increase next year by 12.5 percent, a slight uptick from the 12 percent increase estimated for all of 2008, and a big improvement over the 26 percent decline seen in 2007, the market’s low point.

“Price behavior has been unprecedented,” Appleton-Young said. “Never before have we seen it go down so far so quickly. This is the third anniversary of seeing sales below where they were a year ago.”

In an interview with the Los Angeles Times, Appleton-Young noted that happy days were not here again for Realtors. Still, her prediction is overall upbeat, calling for the national economy to be at its weakest point during the next three quarters, with a turnaround during the second half of 2009.

Of particular interest to real estate investors is the high correlation between median prices and defaults. During her presentation, Appleton-Young noted that California currently has two distinct real estate markets — the REO market and the normal market. Because of that trend, it is a mistake to paint the state with a broad brush, she noted.

The median price discount was up in 2008, and so was the median number of weeks on the market. Correspondingly, net cash to sellers was down substantially, back to 2001 levels. As a result, she projected that the number of first-time home buyers entering the market will increase over the next couple of years, with everybody looking for a deal, along with favorable financing from FHA and the VA.

Even though she is projecting higher unemployment next year, Appleton-Young said she expects to see a lower number of foreclosures in California in 2009, although the number will still be significant.

The national economy in terms of Gross Domestic Product (GDP) will be weak (recession-like), with an improved outlook during the third and fourth quarters. And inflation will still be a problem.

The biggest market opportunities next year for real estate agents, Appleton-Young said, will be working with qualified first-time home buyers, and working DISTRESSED SALES, so long as they know the process and procedures involved.

What do you think? Are CAR’s projections too optimistic, too pessimistic, or just right?

In an unprecedented move aimed at quelling the mounting tidal wave of unrest affecting the world’s economies and investors, the Federal Reserve, in partnership with other central banks around the world, pulled off a coordinated reduction of short-term interest rates Wednesday.

Citing the recent intensification of the global financial crisis even while inflationary pressures are starting to moderate somewhat, the Fed, along with the Bank of Canada, the Bank of England, the European Central Bank, Sveriges Riksbank, and the Swiss National Bank, all announced rate reductions.

Ben Bernanke and his team at the Federal Open Market Committee took the federal funds rate down another 50 basis points (one-half a percent) to 1.5 percent. At the same time the FOMC decided to take the opportunity to move its discount rate down 50 basis points as well to 1.75 percent. Both reductions were unanimously approved.

In its official statement, the FOMC cited economic data suggesting that “the pace of economic activity has slowed markedly in recent months. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.”

The New York Times reported Wednesday that in a speech delivered the day before to members of the National Association for Business Economics, Bernanke said the economic turmoil has caused the Fed to downgrade its “already-gloomy economic outlook.”

In fact, during that speech Bernanke made it clear that the housing market was a key factor in that outlook.

“Economic activity had shown signs of decelerating even before the recent upsurge in financial-market tensions. As has been the case for some time, the housing market continues to be a primary source of weakness in the real economy as well as in the financial markets,” Bernanke said. “However, the slowdown in economic activity has spread outside the housing sector. All told, economic activity is likely to be subdued during the remainder of this year and into next year.”

Until stock indexes around the world tumbled in recent days, many of the central banks thought this to be just an American problem with only secondary ripple effects in Europe, the Times reported.

Now not only stock indexes are being affected, but recent news reports have focused on foreclosure problems in other parts of the world. As this latest round of rate reductions tends to prove, problems with the housing market — including foreclosures — are not going to be a short-lived phenomenon.

Until the core problem with the housing and financial markets is solved, foreclosures will continue to be pervasive, offering opportunities for home buyers and investors to get into the market before it eventually turns around sometime in the next few years.

After all of this, one question remains to be answered in the near future:

Will Ben Bernanke be out of a job with the new administration in January? Or will he even want the job with all the challenges to his authority and wisdom he has faced during the time he has headed the Fed?

Anyone want to submit their resume now?

The prognosis for the U.S. economy is not too rosy these days, so it comes as no surprise that some people are taking matters into their own hands and literally going to the extreme when faced with a foreclosure scenario.

This particular scenario could have played out in many parts of the country right now. In this case, it took place in Akron, Ohio.

It involves Addie Polk, a 90-year-old woman who took out a 30-year mortgage on her 101-year-old home from the Cuyahoga Falls office of Countrywide Home Loans in 2007. Her late husband and she bought the home in 1970.

Polk missed some payments, then Fannie Mae assumed the mortgage and filed for foreclosure. Sheriff’s deputies attempted to evict her 30 times before last week when she shot herself twice in the upper torso and was found bleeding to death by a neighbor who broke into the house after hearing loud noises inside, CNN reported.

Authorities who were on site attempting yet another eviction, found her car keys, pocketbook and life insurance policy laid out neatly so they could be found, suggesting she might have intended to commit suicide over losing the home.

Polk is expected to recover from her injuries. For its part, Fannie Mae decided to cancel the foreclosure proceedings, forgive the loan and let her keep the house after the community rallied around her.

Her Congressman, U.S. Rep. Dennis Kucinich, D-OH, relayed her story to the House of Representatives when debating President Bush’s $700 billion bailout bill last week. “This bill does nothing for the Addie Polks of the world,” CNN quoted him as saying.

Although we generally like to think that helping people in the various stages of foreclosure is a win-win situation for everyone involved, nobody really wins in this type of scenario.