By Candace Taylor

Zhann Jochinke, an associate broker at Argo Residential, put an alcove studio on the market last year for $525,000. But the offers that came in were as low as $390,000.

"People were putting bids out there just to see if the person had to sell," he recalled.

More recently, however, he convinced the seller to drop the price to around $490,000.

Offers began coming in at "5 percent or less off the asking price," he said. Now, the listing is in contract, and expected to close in the next month.

After months of uncertainty, Manhattan buyers and sellers are finally making a market. In the terrifying period after the Lehman Brothers crisis, so few properties were sold that pricing an apartment became a game of roulette. Buyers, too, were unsure what a property would trade for, and their offers were all over the map.

Plummeting prices made matters worse.

"Earlier in the year, recent comps were being considered, and then 10, 15, 20 percent was being subtracted to set a reasonable asking price," Jochinke said. "It wasn't uncommon, even at these prices, that offers would still come in well under ask."

But thanks to the uptick in activity that started in the spring and has carried over into fall, a new batch of closed sales is providing much more accurate information, allowing both buyers and sellers to get a clearer understanding of how much their properties are worth.

"We are able to list a property today at a number very similar to one that closed in the past couple of months," Jochinke said.

As a result, Antonio del Rosario, the president and co-owner of A.C. Lawrence, said he's now seeing accepted offers come in within 2 percent of the asking price, or "many times, at the asking price," he said, adding, "I'm seeing a lot of sellers align with the market."

A nearby example is Bernie Madoff's five-bedroom mansion in Montauk, which reportedly sold last month for more than its $8.75 million asking price.

The shrinking gap between buyers' and sellers' expectations makes it easier to put listings into contract, said Michael Garr, a senior vice president at Core.

"There is a tremendous increase in competitive offers from savvy buyers, which have resulted in more listings in contract," said Garr, who recently held an open house for a two-bedroom co-op at 105 West 13th Street in Greenwich Village that attracted 21 people. "Five months ago, I would have had half that number," he said.

Make no mistake: these deals are trading at lower prices than last year. But properties that have languished on the market for months are now beginning to move.

For example, last month, the Manhattan-based brokerage Marketing Directors sold a three-bedroom penthouse at the Platinum at 247 West 46th Street, a listing that first went on the market in September 2008.

According to city records, the selling price was $5.8 million -- down about 17 percent from the original asking price of $7 million.

"If both parties are realistic about the market, deals are being made," said Jacqueline Urgo, president of Marketing Directors.

As a result, inventory has not risen as precipitously as some had feared it might.

According to Jonathan Miller, the president of the appraisal firm Miller Samuel, there were 8,535 homes on the market in Manhattan at the end of August. That's 4 percent more than the same month last year.

However, it's 22 percent less than six months ago, when there were some 11,000 homes available for sale, he said.

"There is still a lot more on the market than there was two years ago," said Ric Swezey, a senior associate at the Corcoran Group, "but the market has stabilized from this time last year, which has allowed some of the inventory to be absorbed."

It's still anyone's guess how much prices will fall as the recession continues. But brokers report that the steep drop-off in prices that characterized the immediate post-Lehman aftermath seems to have stopped -- for the time being, anyway -- giving buyers and sellers enough breathing room to comfortably make purchases.

"I can confidently say pricing has finally stabilized," said del Rosario of A.C. Lawrence.

However, he cautioned, "I don't know how long it will last, since we have yet to see unemployment rates reach a plateau. Until that part of our economy has stabilized, I don't think the housing market in [New York] or in any part of the country can stand on solid ground."

Experts agree with del Rosario that unemployment and other market fundamentals remain weak, making a speedy return to the boom years -- and prices -- of the mid-2000s very unlikely.

Also, even as buyers exhibit renewed confidence and interest in real estate, strict lending requirements are slowing the buying process.

"Our contracts and closings are up, but there is still no financing," said Marilyn Harra Kaye, president of MLBKaye International Realty, adding that buyers have been asking, "When will the FICO [credit] scores come down to get financing?"

The continued underlying market weakness is most evident in the higher-end market, which has been particularly hard-hit by the lack of available jumbo mortgages.

"The weakest part of the market continues to be homes priced above $2 million," said Steven McArdle, the principal of Urban Marketing. "However, I'm seeing tremendous activity in homes priced at $1.5 million and below."

Also, on the very high end of the market, some listings are beginning to change hands, or at least generate new interest (see "Trophy listings at lower prices"). Early last month, news broke that a townhouse at 165 East 70th was sold in August for $13.5 million to John Mack, the CEO of Morgan Stanley.

The rental market is exhibiting similar trends, with activity greater than it was in the immediate aftermath of Lehman's collapse.

In its first-ever peak-season rental report, released late last month, Citi Habitats found that average rents across Manhattan -- excluding incentives -- dropped by more than 8 percent between May and August 2009, compared to the same four months in 2008. Studio apartments and two-bedroom apartments showed the steepest drop, at 11 percent.

Another rental report, prepared by the brokerage TDG/TREGNY, found that rents for all categories of apartments had dropped between 6 and 10 percent from September 2008 to last month.

"While activity has increased, the numbers have not shown significant improvement," the report said. "Rents have stabilized, but at levels nearly 10 percent back from already depressed 2008 numbers.

"And although vacancies showed improvement this month, they have yet to establish the trend necessary to absorb the considerable amount of excess inventory that is continuing to depress the market."

Overall, brokers are breathing a sigh of relief, as business appears to be getting somewhat back to normal. But they acknowledge the market is not out of the woods.

"The general sentiment is that we still have a long way to go, but any future declines in the market will be slower and less of a free fall," said Kristin Hitsous, an associate attorney at real estate law firm Rosabianca & Associates.

State median home price to increase next year, Realtors group says

Sales of foreclosures at the low end will drive the market, although fewer such resales will occur, the California Assn. of Realtors says. Median price is predicted to rise 3.3%, to $280,000.

By Melissa Rohlin

October 8, 2009

Home prices in California will increase slightly next year as buyers snap up foreclosures and other properties at the market's low end, the California Assn. of Realtors said Wednesday.

At the same time, the number of purchases will decline slightly because there will be fewer foreclosures available.

In its annual forecast, the Realtors group predicted that the median home price in California would rise 3.3% to $280,000 next year. Sales of houses and condominiums, it said, will decrease 2.3% to about 527,500.

"We forecast that sales would be off a little bit next year because we're scheduled to lose first-time home buyers' tax credit at the end of November," said Leslie Appleton-Young, the group's chief economist.

Her group is calling for an extension of the federal tax credit, which benefited more than 1 million home buyers this year, and to make it available to all buyers.

"Expanding credit through at least part of 2010 would help an economy that's still trying to get back on its feet," Appleton-Young said.

There are two markets, she said.

In the moderate to low-end market, home prices have dropped 50% or more in some places, enabling people to buy homes that they otherwise would not have been able to afford, Appleton-Young said. In the high-end market, however, prices haven't softened, but potential buyers have less money.

The forecast says sales will be driven by distressed properties in the low end of the market, causing a shortage in the number of homes for sale at that level and a moderate home-price appreciation. It will continue to be hard to sell higher-priced houses because values have dropped and financing is hard to get.

melissa.rohlin@latimes.com

Manhattan Beach News

--------------------------------------------------------------------------------
 
School District ranks fifth highest in state
by Julie Sharp
(Updated: Friday, September 25, 2009 10:33 AM PDT)   

The Manhattan Beach Unified School District is ranked the fifth highest in the state among all unified districts, according to the just-released Academic Performance Index scores.

“The API results also show a slight narrowing of the achievement gap that historically has left Hispanic or Latino and African American students trailing behind their peers who are white or Asian,” said Jack O’Connell, state superintendent of public instruction, in a press release.

By Boyd E. Jeffery
This is the million dollar question…However, media outlets in need of attracting attention are headlining conflicting reports on a daily basis. So how does the average American homeowner determine what is really going on with the economy? That too however, is the million dollar question…
The Los Angeles Times reports, “New signs raise hopes for recovery” in the headline, but cautions that “states such as California face hurdles…(and) Bernanke’s rally-sparking reassurance disguises the reality that many of the most populous states -- such as California and Florida, long accustomed to serving as dynamos of recovery and growth -- may not see much cause for rejoicing any time soon.”--August 22, 2009.
Another report in the Times declared, “Home prices may be stabilizing, market tracker shows” in the headline, but “Los Angeles prices continued to fall” was reported in the body of the article. -- July 29, 2009.
Many people tend to be attracted to the headlines and therefore miss out on the real story within the story. This causes the confusion we are experiencing in regards to consumer sentiment. There are stories that accurately depict the situation, such as the Wall Street Journal reporting that the reason for a tumultuous economic environment is due to a disparity between consumer income and consumer spending. “Consumers (have) rock-solid jobs -- but also legions of debt-strapped individuals struggling to keep their noses above water,” the Journal article noted. “This split helps explain the patchiness of the recovery that appears to be taking hold after the worst recession in a half-century.”
Americans have long been accused of spending more than they earn, and the last 10 years have been no different. Actually, lenders made it too easy with stated income loans, no money down loans and short-term teaser rates that put many good and bad credit homeowners in mortgages that are either in default or on the brink of default.
My new company is a Service Company aimed at guiding consumers through difficult times and providing courage to those who need it. It is called William Shaw Real Estate Services and I am Boyd E. Jeffery, broker of record for over $181 million in South Bay real estate sales.
I have much more to talk about, so please check out my exciting new real estate blog at www.wsrealestateservices.com. •

Lenders now hinge decisions on proof of developers' wealth
May 28, 2009 06:00PM
 
By Candace Taylor
 
In the easy lending climate of recent years, it seemed almost anyone, no matter how much money they had in their bank account, could become a real estate developer. But in the post-boom world, lenders are hinging much of their decision-making on something that was previously off-limits: a developer's personal wealth.

Real estate financial experts say sponsors now must display evidence of tremendous riches to qualify for a loan, as lenders examine everything from borrowers' cars to their vacation homes and their kids' college tuitions. As a result, real estate development has transformed from a great equalizer, an industry offering opportunities for a wide range of entrepreneurs, to the exclusive province of the rich and famous.

"This is the wrong time to start out with nothing," said Gregg Winter, principal of W Financial, a direct private lender, and commercial mortgage broker Winter & Co.

These days, lenders are willing to go to surprising lengths to ensure they're dealing with extremely well-capitalized individuals, Winter said. They now perform "deep background checks" that scrutinize not only the buyer's real estate experience and portfolio but personal assets. "They're looking much more carefully to see that the developer or owner has enough liquidity outside of his real estate life to handle difficulties," Winter said. "Lenders are more attentive to that than ever."

That means the borrower must produce personal financial statements and proof of investments and assets, from retirement accounts to vacation homes. And those documents are then double-checked against public records.

"If you own a summer house with no mortgage and it's an asset, [lenders] absolutely care about that," said Jeff Bernstein, a partner at real estate investment banking firm Guild Partners.

He added: "Banks always had personal financial statement requirements. But these criteria are being looked at much more closely and weighted much more heavily."

Lenders are even evaluating a borrower's car and jewelry, looking for evidence of deep, long-standing wealth, experts said.

"If you're a real estate lender, you're going to notice whether your client has a Bentley or a Ferrari," Winter said. "Nothing's off limits."

This mentality represents a vast change from recent years, in part because recourse loans, in which the borrower can be held personally responsible for repayment, are increasingly common these days.

When credit was easy and the real estate market was on its speedy trajectory upward, rookie developers regularly emerged from other fields, drawn by the notion that "anybody who could fog up a mirror could borrow money," said Frank Sullivan, a principal at real estate consultancy Gallin Glick Sullivan O'Keefe.

At the time, it also was possible for developers to get up to 95 percent financing. But with institutional capital and mezzanine lending now largely at a standstill, "you're lucky to get 40 to 50 percent," said Robert Knakal, chairman of Massey Knakal Realty Services.

Two years ago, he said, a developer could probably have done a $20 million deal with only about $400,000 of personal equity. Today that same developer would likely be asked to put up around $8 million.

Not only is more equity required, but full or partial personal guarantees are becoming the norm, said Knakal.

"The banks want to know that if the property is not successful, they're secured by the personal assets of the borrower," he said. "There are some non-recourse loans out there, but they're more difficult to get."

The new requirements are a direct response to what lenders view as mistakes of the boom. Developers all over the country secured non-recourse loans at the height of the market — and they now have the option of simply handing troubled properties back to the bank.

In March, for example, Crain's reported that an office building at 475 Fifth Avenue, owned by the Moinian Group and financial partner Westbrook Partners, would be returned to its lender, Barclays Capital, after the owners defaulted on loans.

Banks want to avoid such an outcome this time around by ensuring not only that the borrower has skin in the game but also can pony up more cash if necessary.

"If something gets screwed up, they want to know this guy has $10 million in the bank that they can go after," said Guild Partners' Bernstein. "They want to know every nickel this guy has isn't in this, that he can have some ability to carry this through some chop."

He added that some banks even demand that a borrower do all of his personal banking with them, including checking accounts and mutual funds.

And lenders aren't easily fooled. Homes, cars and other outward trappings of wealth only work in a developer's favor if the borrower can truly afford them and is not overleveraged, Winter said.

"You don't want to see someone with too many obligations that are expensive to maintain," said Winter, who recently made a loan to a borrower with holdings in the diamond industry after carefully assessing the prospects of a De Beers mine in South Africa.

"The college tuition, the Bentley, the Ferrari, the diamond business, none of those are going to create a 'yes' or 'no' on their own," Winter said. "You're going to look at them in context. The savvier the lender is at looking at the big picture, the more likely he is to get the loan repaid."

In fact, some say lenders are now more focused on the qualifications of the sponsor than on the merits of the real estate deal in question.

"It's always the case in a down market — sponsorship is prioritized," noted Keith Braddish, an executive vice president at CB Richard Ellis Capital Markets. "[Lenders] want to align themselves with borrowers who are financially well-heeled, the guys who are going to walk the walk when the market gets tough."

As a result of these factors, "we've had a very tangible shift in the profile of the buyers," Knakal said. "The buyers are high networth individuals and/or old-line families who have been around for decades."

That category includes players like the Muss Development Organization and the LeFrak family, who are rumored to be in the process of banking land in the New York area, as well as the city's many under-the-radar "real estate families" who own large amounts of property and are very well-capitalized, Bernstein said.

"There are dozens of those guys whose names you wouldn't have heard of," he said. "They're conservative and they have substantial assets, and they can afford to act during tougher times."

By Stephanie Armour, USA TODAY
More than four months after the Obama administration launched its housing rescue plan, scores of lenders are focused on rewriting mortgage loans to make them more affordable.
But one demographic is being largely ignored: homeowners with higher-price loans.

They don't qualify for mortgage modifications under the Obama plan. They can't get today's low interest rates if they try to refinance. And with newly cautious lenders warier about who they lend to, just try to sell a home that costs $730,000 or more these days. In many cases, finding a buyer who can get financing takes far longer than for lower-price homes, because banks want as much as 30% down and six months of mortgage payments in reserve.

The result is a housing market in which sales and purchases of higher-price homes have come almost to a standstill, and it's a predicament that could undermine the housing recovery. Move-up buyers (homeowners who want to buy larger, pricier homes) are getting locked out by lack of financing. Too many unsold homes in the top tier of the market also can push down prices for homes in the midprice range.

FIND MORE STORIES IN: Barack Obama | New York | Massachusetts | Federal Reserve System | Federal National Mortgage Association | zipRealty
"We need to have a market recovery in all segments," says Lawrence Yun, chief economist with the National Association of Realtors (NAR). "If the high-end market weakens, those in the middle have to reduce prices."

While the number of homeowners with higher loans is small relative to the entire market, Yun says, "All of Middle America is undoubtedly impacted."

Jumbos and super-jumbos

Bigger loans, known as jumbo loans, come in three types.

Loans up to $417,000 are considered "conforming," and can be sold to mortgage-finance giants Fannie Mae and Freddie Mac, which also guarantee them when they resell those mortgages to investors. But after that, the situation is more complex.

Loans between $417,000 and $729,750 are "conforming jumbo," and loans above $729,750 are "super-jumbo." Fannie and Freddie back only conforming jumbos, and what qualifies as conforming can vary depending on location. In San Francisco, Fannie and Freddie will back loans up to $729,750. In Atlantic City, the maximum is $453,750.

Lenders are leery of making loans above the amount that Freddie and Fannie will guarantee, because if a jumbo loan borrower defaults, it's harder for a bank to quickly sell a higher-end foreclosed property. And because Freddie and Fannie don't buy non-conforming jumbo loans, there's less of a secondary market for super-size loans.

States with the highest percentages of jumbo mortgages include Hawaii, California and New York, as well as the District of Columbia. In New Jersey, Maryland, Massachusetts, Virginia, Connecticut, Washington, Nevada and Florida, jumbos account for 10% or more of all loans.

Jumbo loans aren't just for the very rich: In some pricey areas, $500,000 may buy only a modest single-family house or condo.

Sales of higher-price homes have slowed to a glacial pace, driving the supply of homes for sale above $750,000 from 18.7 months in 2007 to 41.1 months in 2009, according to NAR.

With home values still falling in many areas, borrowers who took out jumbos a few years ago are finding they can't refinance, and their mortgages are sliding into default. The number of jumbos 90 or more days delinquent reached 4.83% in March 2009, up from 1.68% in March 2008, says First American CoreLogic.

That trend is helping spread the foreclosure crisis from real-estate-bubble markets, such as California and Florida, where the housing crisis started, to other areas. Data from First American CoreLogic show that delinquency rates on jumbo mortgages under $1 million have more than doubled in areas such as Atlanta, St. Louis and Portland, Ore.

Some cities with high percentages of jumbo loans that are 90 or more days delinquent include Merced, Calif., Muncie, Ind., and Las Vegas-Paradise, Nev.

It's been a costly situation for Victor Montalvo-Lugo, a clinical program manager at MedImmune in Gaithersburg, Md. He and his wife, Janette, bought a $1.6 million home in Thousand Oaks, Calif., in late 2005. He moved to Maryland for the MedImmune post in December, contracting for an $800,000 home to be built by late August. But with the California house on the market for weeks, he's had no luck selling, even asking $1.05 million.

If he can't sell that home before a company buy-out option expires, Montalvo-Lugo worries about the financing on the new one. A similar but smaller home down the block from his in California is listed in the $900,000s, forcing him to lower his initial asking price. "I'm very concerned. We are already listing for less than what we owe," Montalvo-Lugo says. "We lost all of the initial equity, and we owe the bank more than we will get."

Those with jumbo loans who lose a job or have an adjustable-rate mortgage that resets to a higher amount are struggling. But help is scarce: Under the Obama housing rescue plan, homeowners with loans above $729,750 aren't eligible for mortgage modifications. Lenders may make such modifications on an individual basis, however.

Many homeowners in higher-end markets are finding they must drastically lower prices to try to get buyers. From July 1, 2008, to July 1, 2009, nearly 26% of homes on the market for more than $1 million have seen price reductions, and the average reduction is 13% off the asking price, according to real estate information provider Trulia. Homes on the market for less than $1 million have seen an average reduction of 9% off the asking price.

"What you're seeing are those properties sitting on the market for a lot longer because people can't get loans," says David Kerr, a ZipRealty agent in the San Francisco area. "I got a call about a property in Berkeley for more than $1 million and almost fell out of my chair. All of what we're showing is in the $200,000 to $300,000 price range."

Jumbos are still being offered at Investors Savings Bank in Short Hills, N.J. But demand has slacked off because those taking out or refinancing jumbo loans must pay higher interest rates than other borrowers, says Richard Spengler, chief lending officer. Rates on jumbos are hovering around 6%, vs. 5.20% on a 30-year, fixed conventional loan.

The bank requires down payments of 20% to 30%, depending on the size of the jumbo. Spengler says many banks have gotten out of jumbo lending because of the lack of a secondary market. Investor Savings Bank keeps jumbos it issues in its own portfolio.

The overall stagnation in the market has a spillover effect on the economy. NAR estimates the slump in the jumbo home loan market has led to a $42 billion decline in economic activity.

That's because borrowers who take out jumbos have much higher incomes than a typical borrower (an average $207,600 in 2007, says NAR's most recent data) and when they buy a home, they spend a lot to furnish it. When sales of costly homes slow, sellers of furniture, carpeting, flooring and appliances get hurt.

Z Gallerie, a home merchandise retailer, is the latest in a string of higher-end stores to feel pinched. The store filed for bankruptcy-court protection from creditors in April, citing a severe sales drop. January sales were down 19% from a year earlier.

"The high-end retailers are being impacted," says Gary Drenik at BIGresearch, a consumer intelligence firm. "When people buy a home, home-improvement and related sales go up."

Those who can buy higher-end homes are seeing their discretionary income further whacked by strict lending conditions. Lenders are requiring some borrowers seeking to finance 80% of their home purchase keep 40% of the total loan value in a reserve account, says Michael Tooker, a mortgage planning specialist for Valley Private Mortgage Group in Scottsdale, Ariz. On a $1 million loan, "that's $400,000 in reserve," he says. "Some want six months total debt service in reserve. It's so arbitrary."

Camille Swanson, a Realtor at Realty Executives in Phoenix, can relate to the struggle. After selling her home, she fell in love with a foreclosed stacked-stone home in the desert that had been abandoned. But she discovered that no lender wanted to give her a jumbo loan on a property that needed so much renovation.

Swanson is almost finished obtaining a loan for the new place with an approval up to $640,000, but details are still being negotiated. With her 20% down payment, the total investment will be $800,000. She approached five lenders as far as Washington before finding one in her area to give her a loan. She didn't need money in reserve because of her retirement assets. "For them, it's an issue of risk," Swanson says.

Real estate groups such as the NAR are pressuring Congress and the Obama administration to increase the jumbo loan limits that Fannie and Freddie will guarantee and make them permanent. Current amounts were raised in 2008 and are set to expire Dec. 31. They also want the Federal Reserve to buy jumbo-backed securities because Freddie and Fannie can't. The hope is that Fed purchases would create enough of a secondary market for these loans so banks would be more open to lending higher amounts.

Meanwhile, in jumbo-heavy markets, homeowners are increasingly frustrated by their inability to sell. They can't relocate for jobs or retirement. They can't unload vacation homes that they may now struggle to afford.

One such homeowner is Robert Westover, who works for the federal government in Washington, D.C. He's been trying for months to sell a home in Hawaii with an ocean view. He bought it for $585,000 six years ago; it was valued at $1.1 million during the real estate peak in 2006. But there are no offers. He planned to list it for $940,000, but his Realtor suggested $890,000. Then he lowered it to $850,000. At one point, a potential buyer came forward but had no financing.

"It's just been tough. It was getting crazy," says Westover, 45, who now is taking the home off the market and renting it instead. "I hope I've learned a lesson, which is don't put anything on the market in this economy. Most people who have homes in the jumbo (price range) are reliable, pay bills. Why are we suffering while the government gives help to everyone else?"

By Paul Davidson, USA TODAY
WASHINGTON — The Federal Reserve raised its fourth-quarter unemployment forecast to as much as 10.1% and said the jobless rate would be higher than anticipated through 2011 but it also boosted its economic-growth projections, according to a report released Wednesday.
And the central bank reiterated that it expects the recession to end this year.

Noting that unemployment has risen more rapidly than expected in recent months, the Fed said the jobless rate would climb to 9.8% to 10.1% in the fourth quarter, up from the 9.2% to 9.6% projected in April, according to minutes of the Fed's June 23-24 meeting.

The revision came as little surprise to economists, many of whom already have predicted unemployment would hit 10% this year before peaking slightly above that in mid-2010. The jobless rate was 9.5% in June, the Labor Department said this month.

"They had to move it up," says analyst Brian Bethune of IHS Global Insight.
 
The Fed now projects unemployment will fall to 9.5% to 9.8% late next year and to 8.4% to 8.8% in late 2011—both about 0.5% higher than its April forecast.

At the same time, the Fed said the economy will be stronger in the fourth quarter and in 2010 than it previously expected. The central bank expects the economy to contract 1% to 1.5% this year, better than its April forecast of 1.3% to 2%. And it should grow 2.1% to 3.3% in 2010, the Fed said, slightly better than it previously forecast.

The Fed cited a litany of factors for its improved outlook, including more stable consumer spending, the bottoming of home sales, higher household wealth and falling corporate bond rates. The more vibrant economy should help lower unemployment "significantly" by 2011 and 2012, the Fed said.

The more vibrant growth forecast prompted the Fed to modestly increase its inflation forecast to about 1.2% this year and 1.5% in 2010, though that's still well below historical levels.

"It's good news," says John Ryding of RDQ Economics. "Three, four months ago, it wasn't' clear that there was bottom in sight and now the debate has switched to what kind of recovery we're going to have."

The Fed report helped push the Dow Jones Industrial average up 256.72 points, or about 3%, to 8616.21.

At its June meeting, the Fed left interest rates unchanged near zero and decided not to expand a program to purchase $1.75 billion in government securities — a strategy that drives down interest rates and boosts economic activity.

The minutes show that policymakers weighted such a move but rejected it even though most did not believe it would spark inflation. Rather, they voiced concerns that investors would view the maneuver as inflationary because it would pump more cash into markets.

That in itself could lead to inflation by causing employees to demand wage increases to keep up with rising costs, Ryding says.

Separately Wednesday, the Labor Department said consumer prices jumped 0.7% in June, the most in nearly a year, largely because of a 17.3% increase in gasoline prices. But Steven Wood, chief economist for Insight Economics said inflation is not a concern, noting consumer prices have fallen the past year, mostly because of a drop in energy prices.

Also, industrial output fell a less-than-expected 0.4% in June, vs. a 1.2% drop in May, the Federal Reserve said.

The Community Newspaper of The Beach Cities
Manhattan Beach • Hermosa Beach • Redondo Beach • El Segundo

However, Jeffery said people shouldn’t
expect him to predict the future in any of his
blogs or advice. “I would be a fool to act
like I absolutely knew what was going to 
happen in the future,” he said. “But what I
can do for a client is look at where they
have been, where they are now and where
they need to be in the future. I think that
although this market feels uncertain, there
are still a lot of opportunities out there for
people and there are going to be a lot of
people who will regret it if they don’t take
advantage of this market. It’s just a matter
of feeling comfortable, and doing what is
right for you and your family’s future.”

They relied on cash-out refinancing or took out home equity lines of credit to get capital during the easy-money era, but now many are underwater on their loans.
By E. Scott Reckard
June 9, 2009
In better economic times, Santa Clarita mortgage broker Fred Arnold relied on a home equity line of credit if his cash flow was uneven and he needed to cover payroll.

But when home sales crumbled last fall, there was no such backstop for the business. His home was still worth more than the mortgage, but his bank was retrenching and had shut down the credit line. So Arnold sold his house, used some of the proceeds to keep his business afloat and bought a smaller home.

scott.reckard@latimes.com

Jeannine Aversa, AP Economics Writer
On Tuesday May 5, 2009, 6:03 pm EDT
WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke gave his most optimistic prediction yet Tuesday about the end of the recession, saying he expects the economy to start growing again this year -- although the comeback could be weak and more jobs will disappear even after a recovery takes hold.

The Fed chief told Congress' Joint Economic Committee that he saw hopeful signs, including firmer home sales, a revival in consumer spending and some improvement in lending conditions for banks, businesses and individual borrowers.

"We continue to expect economic activity to bottom out, then to turn up later this year," Bernanke said. 

Previously, Bernanke has suggested the recession could end this year if the government managed to stabilize the financial markets. This time, he said not only that he expects an end to the recession this year end but also a return to growth.

For that to happen, he said, the banking system must continue to stabilize.

"A relapse in financial conditions would be a significant drag on economic activity and could cause the incipient recovery to stall," Bernanke said.

Barring such a setback, Bernanke suggested the worst of the recession -- for lost economic activity -- has passed. Economists say the recession started in December 2007, then hit with force in the fall of last year when the financial crisis intensified.

He suggested that even in a recovery, economic activity would probably still be below normal, which some economists say is around a 2.5 percent growth, and "only gradually gain momentum."

More than 5 million jobs have vanished in the recession, and the Fed chief predicted "further sizable job losses" in the coming months. The unemployment rate stood at 8.5 percent in March, a quarter-century high.

By year's end, some economists believe the jobless rate could hit 10 percent, but the Fed stops short of that figure. Bernanke said the unemployment rate would probably climb somewhere in the 9 percent range.

Among signs cited by Bernanke that the recession may be loosening its grip: The housing market has shown some signs of bottoming, and consumer spending, which collapsed in the second half of last year, came back to life in the first quarter.

While tax cuts from the economic stimulus plan and a sense that the economy is no longer in free fall may help people feel freer to spend, rising unemployment and shattered nest eggs may give them second thoughts.

"Bernanke is sending the message that things are looking better," said Brian Bethune, economist at IHS Global Insight. "At the same time that he's saying, `We're coming out of this,' he also is cautioning, `Let's not make the mistake of being too optimistic that we lose momentum on efforts to stabilize the financial system.'"

Bernanke took heat before Congress for the Fed's decision not to hasten the implementation of new rules to protect Americans from abusive credit card practices, as some lawmakers had requested. The Fed's rules take effect in July 2010.

Rep. Elijah Cummings, D-Md., said many Americans burned by the recession have watched banks and other companies get bailed out and feel like: "Hey, we're on fire, too. What about us?"

In the latest sign the downturn could be easing, activity in the services sector contracted at a slower pace in April, the Institute for Supply Management reported Tuesday.

Meanwhile, business investment remains "extremely weak," and conditions in the commercial real estate market are "poor," the Fed chief said.

There have been tentative signs that the declines in other world economies are moderating, which could help sales of U.S. exports. They have been falling sharply, a key factor behind the drag on U.S. manufacturing, he said.

In the U.S., the economy shrank at faster than a 6 percent annual rate late last year and early this year, the worst six-month performance since the late 1950s. Analysts think it is still shrinking and could start growing in the third or fourth quarter.

Bernanke provided no details about how the 19 large banks forced to undergo government "stress tests" have fared. The results, due out Thursday, will detail which banks could need more government help if the recession gets even worse.

Once the results are released, banks will have to develop plans for how to raise enough capital to meet higher government requirements for bank reserves, perhaps by selling assets. They will have six months to carry them out.

Responding to concerns about secrecy in the government's lending and bailout programs, Bernanke said the Fed will start providing information on the number of borrowers under each plan and details on loans and collateral. But he did not say the Fed would disclose who is borrowing, as lawmakers have suggested.

Striking a lighthearted note, Bernanke said that after the economic crisis has ended, "I look forward to a long period of boredom."