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October 2nd, 2008 11:57 AM by David W. Welch
Just a spoon full of sugar helps the medicine go down. Remember that song from Mary Poppins? Well, that is apparently what it took to get the Senate to take their medicine on the bailout bill. Hopefully, the house will take up the issue today, and agree to take their medicine as well. I do not like this much government intervention in anything, but I do feel like something has to be done to stabilize the financial markets. Unfortunately, many are paralyzed by the uncertainty in all the markets. The housing market, mortgage market, financial market, and commodities market are each taking hits from the overall negative sentiment. Of course, this has caused an influx to the bond market, specifically the government bond market is seen as a bit of a safe haven.
The dollars have gotten huge in all of this, so look for potentially big swings in all of these markets if this gets passed. First, if the governement goes to the bond market to raise the capital for this infusion of cash, it will push long term borrowing rates up effecting mortgage rates. There will be cash available, but it may come at a higher cost than what it is right now. This could have a downward effect on inflation, and therefore push commodities down since they are often purchased as a hedge against inflation. With any luck, cheaper oil will encourage economic expansion. Home purchases should encourage economic expansion, and we could get back on track. However, until we get through the inventory of foreclosed houses, don't look for real estate price stabilization for at least a few quarters.
www.DavidWelch.com, Orlando Real Estate Blog