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November 2009 Commentary on the Real Estate Market
by Peter L. Zachary, MAI, MRICS

Hope for the beleaguered homeowner is finally happening. The New York Times Business Day page 1 article on October 9, 2009 indicates that 500,000 homeowners have had their mortgages modified and their loan payments lowered. Treasury Secretary Tim Geithner said that "mortgage payments are being lowered faster than homes are being sold in foreclosure proceedings, and roughly 40% of the 1.2 million homeowners deemed eligible have been helped."

The New York Times on October 17, 2009 had a page one article, "US Deficit Rises to $1.4 Trillion: Biggest since '45". The article states, "The Obama administration said Friday that the federal budget for the fiscal year that just ended was $1.4 trillion, nearly a trillion dollars greater than the year before and the largest shortfall relative to the size of the economy since 1945." According to the article, "the short fall for the fiscal year, which ended September 30, translates to 10% of the economy, according to a joint statement from the Treasury secretary, Timothy F. Geithner, and the Director of the Office of Management and Budget, Peter R. Orzag. For the 2008 fiscal year, the deficit of $459 billion was 3.2% of the economy as measured by the gross domestic product.

Obviously the banking bail out and the Federal stimulus had accounted for this steep increase in the Federal Deficit.

The front page of the October 22, 2009 issue of the New York Times said, "US Will Order Pay Cuts at Firms with Bailout Aid - Moves Affect 25 Top Earners at 7 Companies - About a 50% Compensation Cut". The headline speaks for itself. However, it only covers Citigroup, Bank of America, AIG, General Motors and Chrysler and the financing arms of the two automakers. The article states, "the cash portion of the executives' salaries will be slashed by an average 90%, and the rest will be replaced by stock that cannot be sold for years."

My question is, "Why doesn't this apply to Morgan Stanley and Goldman Sacks?" The next day, October 23, 2009, I read in the New York Times that "Morgan Stanley overhauled its compensation plan to give top executives 65% of their pay in stock - and much of that deferred. What's more, Morgan Stanley employers have to defer a chunk of their cash compensation, so that it can be clawed back if the deals they have made go sour. Over at Goldman Sacks - where compensation practices aren't exactly being heaped in praise these days - partners made no more than $220,000 in cash last year and the rest in stock. And the firms partner's have to hold onto 75% of their stock until they retire.

And to get back to housing, the October 24, Business day Section of the NY Times stated on page B3 "Sales of Existing Homes Climb 9.4% - Home Purchases Hit Two Year High." The article states: "More foreclosures are looming, unemployment is surging and the economy remains in the tank - but home buyers are apparently undaunted. Sales of existing homes in September were at their highest levels in more than two years, the National Association of Realtors reported Friday. Sales were up 9.4% from August, to a seasonally adjusted level of 5.57 million units. The agent's association attributed many September sales to people eager to take advantage of the government's $8,000 tax credit for first time buyers before it expires next month. First time buyers accounted for nearly half of the market during the last year, according to an association survey, a historically high level.

And has anyone received a thank you note from JP Morgan Chase Chief Executive Jamie Dimon - The NY Post reports on October 25, 2009 that he announced his bank's third quarter profit but neglected to say that 41% of the banks profits were the result of subsidized below rate lending by the Federal Reserve. The Washington based center for economic and Policy Research calculated that the below market rates offered by the federal reserve to JP Morgan Chase and 17 other large banks accounted for 41% of the profits at JPMorgan Chase and 47% of the profits at Bank of America. They estimate that $34 billion was given to the top 18 banks by lending to them at below market rates. This equates to $300 for each of the 120 million families in the country.

I don't know about you, but I would like my $300 back.

More next month...

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