One in Five Flippers Losing Money

Headlines (Scroll down for complete stories):
1. Experts: Fed Could Be Done Raising Rates
2. One in Five Flippers Losing Money
3. Paulson In China to Talk Reform
4. Jobless Claims Climb by 7,000

1. Experts: Fed Could Be Done Raising Rates

It is looking more and more like it could be 17 and done for the Federal Reserve. There is a growing view that after 17 consecutive rate increases, the longest stretch in Fed history, the central bank will keep rates steady for the rest of this year.

Some economists are forecasting that the next Fed move will be to cut rates, possibly as early as next spring, in response to a slowing economy and falling inflation pressures.

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As widely expected, Fed Chairman Ben Bernanke and his colleagues held rates steady at Wednesday's meeting, issuing a statement that was virtually identical to the one the Fed released after its Aug. 8 meeting, the first time it paused after two years of raising rates.

The action left the federal funds rate, the interest that banks charge each other, at 5.25 percent. That meant that banks' prime lending rate, the benchmark for millions of consumer and business loans, will stay at 8.25 percent.

The vote to hold steady was 10-1 with Jeffrey Lacker, head of the Richmond regional Fed bank, dissenting in favor of a further quarter-point hike. He had also dissented in favor of a rate hike in August.

Fed officials kept the door open to further rate increases, saying as they had in August that "some inflation risks remain." They also repeated their August view that any further rate hikes "that may be needed to address these risks" will depend on how the economy performs.

But private economists noted that all the small changes to the statement seemed to be in the direction of staying on hold and letting the current economic slowdown do the job of pushing inflation rates back down to acceptable levels.

"This was a very financial-market friendly statement," said Mark Zandi, chief economist at Moody's Economy.com. "The minor tweaks in the verbiage suggest the Fed is finished tightening."

The Fed meeting occurred against a backdrop of a number of developments that suggest the central bank's goal of having an economic slowdown take pressure off inflation was unfolding.

Oil prices, which had soared above $77 per barrel in mid-July, have fallen to close to $60 per barrel. That has helped push down gasoline prices from record highs above $3 per gallon to around $2.50 per gallon nationwide.

The favorable development on energy is already showing up in the government's inflation statistics with both consumer and wholesale prices slowing sharply in August.

At the same time, the overall economy has slowed to a growth rate of 2.9 percent in the spring after racing ahead at a torrid 5.6 percent pace in the winter.

Many analysts believe that growth has slowed even further in the last half of this year to a pace of around 2.5 percent.

That could translate into the Fed's hoped-for soft landing in which the economy slows enough to keep inflation under control but not so much that the country tumbles into a recession.

But one major question mark is what will happen to housing, which has sagged significantly this year. The government reported this week that new home construction plunged 6 percent in August, the fifth decline in the past six months.

The concern is that a steep decline in housing could rattle the economy much as the popping of the stock market bubble did in 2000.

"The jury is still out on a soft landing. We think we are going to succeed, but we can't be sure yet," said David Wyss, chief economist at Standard & Poor's in New York.

Wyss said he expected the Fed to remain on hold for the rest of this year and by next June, it could start cutting rates.

Zandi said he could see rate reductions as early as this spring if the core rate of inflation, which excludes food and energy, has fallen closer to the Fed's comfort zone of 1 percent to 2 percent. The Fed's preferred measure of core inflation has risen 2.4 percent over the past 12 months.

As long as the Fed stays on the sidelines, analysts predict that other interest rates set by financial markets will likely stay about where they are.

The 30-year mortgage, which hit a yearly high of 6.8 percent in late July, has since fallen to 6.4 percent, according to Freddie Mac, reflecting optimism in financial markets that inflation pressures are easing and the Fed won't raise rates any more.

Many economists said they believe 30-year mortgages will hover in a range around 6.5 percent for the next 12 months.

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2. One in Five Flippers Losing Money

One out of five flippers who sold a home from April to June of this year lost money on the deal, says HomeSmartReports.com. That's the highest ratio of losses in two and a half years. And it may get worse, says USA Today.

"In all but four of the last 23 quarters, the flippers who lost money lost a greater amount than the flippers who made money," says Mike Ela, president of HomeSmartReports.com.

"We're bombarded with 'Get Rich Through Real Estate' ads and infomercials that promise get-rich-quick opportunities," Ela says to USA Today. "So much work needs to go into proper research to buy and sell."

Investors, according to the National Association of Realtors, purchased one out of every four homes sold last year. They primarily bought in the bubble markets of California, Florida, Arizona, and Nevada, says USA Today.

The paper points out that many flippers are still holding firm on their selling prices, hoping to get out with a profit.

"It's different from the stock markets," Edward Leamer, director of the UCLA Anderson Forecast, tells USA Today. "When things get bad, there's a mad dash for the door, and prices can drop rapidly. In the home market, the investors, rather than rushing for the door, are holding onto homes imagining the market will turn around."

But it is getting increasingly hard to do that. For sale signs are popping up everywhere and prices are coming down. Inventories for existing homes rose to a record 7.5 months. The number of new homes for sale reached a record high with 6.5 months of inventory on the market. Builders are offering big incentives to unload inventory. Flippers looking for new properties have dried up, slashing demand.

Leamer tells the paper that the current market reminds him of real estate in the 1980s. When that bubble burst, it took 10 years for the real estate market to come back.

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3. Paulson In China to Talk Reform

U.S. Treasury Secretary Hank Paulson is in China today to talk tough with the Chinese about currency reform. Paulson wants China to let the yuan strengthen against the dollar in order to repair the huge trade deficit and help U.S. industries compete with Chinese products.

Paulson told reporters that he isn't concerned with how the Chinese strengthen the currency, saying "I'm going to know flexibility when I see it."

Paulson also remarked to reporters that he's against possible legislation to put a 27.5 percent tariff on Chinese imports if there is no currency reform.

Paulson will meet with Chinese President Hu Jintao in addition to other Chinese government leaders.

"They're very interested in Paulson, not just because he's connected to senior political leaders but also to senior business leaders through his Wall Street background," Ben Carliner, the director of research at the Economic Strategy Institute in Washington, tells Forbes magazine.

Paulson is the former chief of Goldman Sachs before being named Treasury Secretary. When with Goldman Sachs, Paulson worked with the Chinese government to become the first foreign company to buy a Chinese investment house.

China and the U.S. also announced that they will begin to discuss regularly their long-term economic relationship.

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4. Jobless Claims Climb by 7,000

The number of newly laid-off workers filing for unemployment benefits rose last week by the largest amount since early August, providing further evidence that economy has slowed.

The Labor Department said that 318,000 workers filed claims for jobless benefits, up by 7,000 from the 311,000 benefit applications filed the previous week. It followed two weeks of small declines in claims and was the biggest increase since jobless claims had risen by 10,000 in the week ending Aug. 5.

The increase was slightly higher than economists had been expecting and provided fresh evidence that the economy has been slowing this year under the impact of rising energy prices, high interest rates and a cooling housing market.

The total level of claims at 318,000 was the highest since claims hit 322,000 the week of Aug. 5.

The Federal Reserve on Wednesday voted to keep a key interest rate unchanged for the second consecutive month, preferring to wait to see whether its record string of 17 consecutive rate hikes will be enough to slow the economy to a more moderate pace and keep inflation at bay.

While the central bank said it remained alert to inflation risks, many economists believe the central bank will not tighten credit further and may start cutting rates early next year.

The economy is being buffeted by opposing forces at present. Recent sharp declines in the cost of gasoline and other energy products have raised hopes that consumer spending will get a boost in coming months as Americans pay less at the gas pumps and thus have more to spend on other products.

However, recent reports show that the nation's once-booming housing industry, which had set sales records for five straight years, is rapidly falling back to earth with sales and construction dropping sharply.

There are fears that a retrenchment in housing could rattle the economy much like the bursting of the stock market bubble did in 2000.

The government reported that the nation's unemployment rate edged down to 4.7 percent in August, after hitting 4.8 percent in July. With the economic slowdown that began in the spring, employers have trimmed their plans for hiring new workers but they have increased layoffs by a significant amount.

For the week ending Sept. 9, revised figures show that claims fell by 2,000 to a level of 311,000. There were 35 states and territories that reported a drop in claims while 17 showed increases and one reported no change.

California reported the biggest drop in claims, a fall of 4,517, which it attributed to one less day to file applications because of the Labor Day holiday.

Claims fell by 2,245 in Louisiana and were down by 2,196 in New York, an improvement attributed to fewer layoffs in the transportation industry.

Iowa had an increase of 1,420 in benefit applications, the only state reporting an increase of more than 1,000.

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Editor's Notes:

Bernanke's blunder could be the biggest opportunity of the last decade for savvy investors. Go here now.
One expert tells Financial Intelligence Report that housing prices nationwide could fall by as much as 40% over the next few years. Find out the five ways to protect yourself and profit from the coming real estate crisis. Go here now.
Hedge Fund Investing's currency trades have brought in gains of 171%, 124%, and 185%. Don't miss out on gains like this. Go here now.
The Baby Boom crisis is just beginning. Protect your wealth from this looming tidal wave before it's tool late. Go here now.
Is there a killer lurking in your mouth? Read this before you chew your next meal or drink a hot cup of coffee. Go here now.