SOURCE: CNN

With the world of real estate confusion it has become difficult for home owners to know what is in their best interest in terms of keeping their homes, much less understanding what their home is worth.

There are many aspects in determining the value of a house. Some of the factors are the size of the house, number of rooms, if there is a yard are just to name a few. Economists look at interest rates, employment, population growth, but the best guide to home values is rents.

The market had to fall from the inflated home prices in order to restore the normal, long-term relationships with rents. Rents serve as a marker to what actual homes prices may be.

In other words, while prices soar from time to time, sending the ratio to exceptional heights, sooner or later the relationship is bound to return to its historical average."

"So what are rents saying about home values today? To answer that question, Fortune worked with Moody's Economy.com to estimate adjustments needed to get prices and rents back in balance."

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SOURCE: CNN

Industry trade group's weekly survey says refinance and purchase volumes also declined sharply.

Mortgage application volume fell 19.5 percent during the week ending Dec. 14, according to the Mortgage Bankers Association's weekly application survey.

The trade group's application index fell to 653.8 from 811.8 the previous week.

Refinance volume dropped 27.3 percent during the week, while purchase volume fell 10.6 percent. Refinance applications accounted for 53.2 percent of total mortgage applications, down from 57.6 percent during the prior week.

Volume fell as interest rates rose. The average interest rate for traditional, 30-year fixed-rate mortgages rose to 6.18 percent during the week ending Dec. 14, from 6.07 percent during the previous week.

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SOURCE: CNN

November showed housing construction continued to fall with a 16 year low.

Construction of single-family homes fell by 5.5 percent, the lowest level since April 1991. Applications for building permits fell for a sixth straight month, the slowest pace for building permits since June 1993.

The construction decrease has left home building 24.2 percent below the level of activity a year ago. Housing has been in a serious downturn for the past two years following five boom years in which sales and home prices soared.

The real estate crash has left concerns of the economy falling into a full-blown recession.

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SOURCE: The New York Times

With the housing market softening, it might be wise for commercial real estate investors to be looking for ways to enhance their property.

Cosmetic enhancements are always a good first step in increasing the value of a property. Paint, professional landscaping, or adding a playground to an apartment complex, are just a few examples.

Take a good look around at the property and surrounding land and see if there are any other parts that can be rented or leased.

Suggestions from experts in the field:

Mr. Reed, who has also been a real estate investor, says he often bought apartment buildings that had waiting lists, "because I knew that wait lists meant the rents were too low, so then I would raise the rents to market value."

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SOURCE: The New York Times

Federal Deposit Insurance Corporation released figures last week showing both midsize and small banks had construction loans outstanding that were greater than their total capital.

Banks, especially small banks, have leaned on construction lending as the economy is slowing. This strategy was good practice. Construction loans were profitable for smaller banks. Competition from larger banks and securities closed areas such as mortgage lending and the issuing of credit cards.

Currently approximately 3 percent of all construction loans are classified as being nonperforming, or have borrowers that are behind on their payments. That is the highest proportion in a decade.

Construction loans are particularly bad when a construction project starts but cannot be finished.

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SOURCE: Forbes

With the global credit crash, the new year's financial outlook is more complex.

Tuesday mortgage rates were cut by an additional .25% to encourage confidence in credit markets brought on by the subprime crash. Experts are saying that additional rate cuts may need to happen for people to be willing to take on risk.

According to Sanford Bernstein analyst and Brad Hintz, "The fixed income market is simply going through a repricing of credit risk." They believe that much of the pressure will end on the first day of trading in 2008.

Commercial banks pull back from lending and shed assets to boost their tier one capital at the end of the calendar year, thus tightening credit

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SOURCE: CNN Money

Rules would apply to loans made by banks, brokers and all other types of lenders.

Home mortgages borrowers may gain new protections as the Federal Reserve, which has regulatory powers over the nation's financial system, seeks to set up guidelines that will help deter fraudulent and abusive lending.

The rules come in the wake of the housing and credit markets melt down, which has led to record number of home foreclosures and threatens the economy with recession.

The Fed is considering:

- Barring lenders from penalizing subprime borrowers - those with spotty credit or low incomes - who pay their loans off early.

- Forcing lenders to make sure that borrowers, especially subprime borrowers, set aside money to pay for taxes and insurance.

- Restricting loans that do not require proof of a borrower's income.

- Examining lenders' failure, in some cases, to consider a borrower's ability to repay a home loan.

- Improving financial disclosure so people better understand the terms and conditions of their mortgages and get this information when it is most useful.

- Curtailing abuses in mortgage advertising.

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SOURCE: CNN Money

The two government sponsored mortgage financers, who own or guarantee about two-fifths of the U.S. mortgage debt, have sold billions of dollars of special stock to boost their finances after posting alarming third-quarter losses. Fannie last month reported a third-quarter loss of $1.4 billion, while Freddie lost $2 billion in the same period.

Both companies have been a major source of funding in the home-loan market by buying up mortgages made by banks and other lenders. The loans would then be bundled and sold as securities for sale to investors.

Fanny Mae and Freddie Mac customarily repurchased most mortgages once they were 120 days past due. Freddie Mac said it will now purchase delinquent loans that are part of larger securities issued by the firm when the mortgages are at least 120 days past due, and either the mortgage has been modified, a foreclosure sale occurs, or the cost of payments to security holders exceeds the cost of holding the loans. It will also repurchase mortgages that are 24 months delinquent.

Brian Faith, a spokesman for Washington-based Fannie Mae (Charts), said late Monday, "We are undertaking the same steps."

Fannie Mae recently imposed a 0.25 percent fee on all new home loans it buys or guarantees, and both companies have begun adding surcharges on loans to borrowers with credit scores below 680 and who are borrowing more than 70 percent of the home's value.

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SOURCE: CNN Money

According to Dan Mudd, Fannie Mae Chief Executive, average home prices will decline another 4 - 5 percent in 2008 and does not see the US housing market turning around until 2009.

Between 2001 and 2005 median housing prices rose 43 percent and began to decline in 2006. Prices are expected to fall nearly 2 percent this year.

The higher prices caused issues with affordability in the market and priced need to decline in order for the housing market to recover.

He blames the growth of subprime mortgages, which created the current credit market crises.
Fannie (FNM) has had to take steps that have hit its share price recently, including cutting its dividend by 30 percent and the sale of $7 billion of preferred stock earlier this month to raise capital. It took the steps after reporting a $1.4 billion loss in the third quarter.

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SOURCE: The Street

With housing prices declining and many believe will continue to fall, it might be time to consider that vacation home.

Prices for homes fell 4.5 percent from a year earlier in the third quarter. Excess inventory is pushing home prices down. Some of the inventory is due to the increase of people defaulting on their mortgage loans and the tighter restrictions for home loans.

Potential buyers want to act quickly because, historically, when home prices fell, the prices do not stay low for long.

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SOURCE: Chicago Tribune

The plan to lessen foreclosures may end up sending the economy into a recession. If a recession occurs then the housing market downturn could last until 2010.

"This is the most serious housing downturn since the Great Depression," Zandi said at the conference sponsored by the Office of Thrift Supervision.

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SOURCE: Forbes
The bigger risk of the White House Administration's plan is the long term effects which could deepen and prolong the credit crisis.

The plan applies to just 240,000 subprime loans. The Mortgage Bankers Association reports the number of subprime adjustable rate mortgages at 2.9 million.

16% of subprime borrowers who are already delinquent or in default will not be helped and millions of other homeowner who do not meet the plan's criteria will be left out in the cold.

President Bush, along with Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson, outlined other proposals Thursday that are meant to help the 2 million borrowers facing sharply rising rates on their adjustable-rate mortgages beginning next month. The plan includes refinancing some of the borrowers into private, fixed-rate mortgages, or putting them into Federal Housing Administration loans.

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SOURCE: NPR

The big question: Should the federal government bail out lenders and borrowers in the subprime mortgage crisis?

Financial institutions are in trouble. If they falter so too might the economy. On the other if the government uses its powers to help ailing lenders and homeowners then risky behavior will likely continue.

"Bailing out the lenders is unconscionable," agrees Kathleen Day, spokeswoman for the Center for Responsible Lending, a nonprofit research group based in Washington, D.C. "They made buckets of money on these subprime loans, and now they need to suffer the losses. In a free market, you should feel the pain" and pay for your mistakes, she says.

Still some companies are so connected to the U.S. economy that they cannot be allowed to fail. Worse yet is that residential loans were bundled and sold to investors all over the world, so America's subprime lending crisis is now a global problem - one that has rattled stock markets from Europe to Asia.

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SOURCE: NPR

A job report the Labor Department released Friday shows the economy has weakened over the past year.

New York Times reporter David Leonhardt assesses the state of the economy and says the recent housing bust has the potential to send the wider economy into a recession.

According to Leonhardt, even thought the President's mortgage rescue program will help some homeowners stay in their houses longer, it is not designed to help everyone. "It wider impact will probably not be huge."

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SOURCE: Los Angeles Times

The credit crunch is now spreading to the commercial real estate market sector.

Investors, who found buying office buildings and other commercial properties believing them to be a safer investment, are facing the same issues that the residential market began feeling last summer. With the stock market falling, the dollar value decreasing, and concern about recession, large real estate deals are becoming less attractive.

Even the Southern California market, one of the country’s investment favorites, is seeing sales cooling off and prices declining. People, in order to avoid taking a loss on their investment, are waiting for the market to improve before selling.

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SOURCE: The Christian Science Monitor

The reasons behind the real estate slowdown in the 1990s were understood: the economy, in areas of the country, was slowing down, interest rates were rising and banks were reluctant to grant new loans.

It is different in today’s housing slump. The worries of the concerned investor are having as much an impact as the reluctant banks. Those worries present a new X factor in today’s real estate slump. This new factor has created broad uncertainty and no one has a clear idea of how deep the losses are.

The reason for the lack of clarity revolves around the changes in mortgage lending. Banks used to make home loans, now the practice has changed to selling off the mortgages to other lenders. This helped make credit more available and made money for investors.

With housing prices going down investors became nervous about buying mortgage bundles. When this happened flow to the mortgage industry credit stopped.

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SOURCE: Reuters

The second largest provider of US home loan financing, stated it is going to sell $6 billion in preferred stock to strengthen capital in the wave of mortgage-related losses.

Following a $2 billion loss in the third-quarter due to high credit expenses related to credit on mortgages it owns or guarantees, Freddie Mac moves to buoy its waning capital base.

The government-sponsored enterprise’s intention is to raise enough capital to last through 2008 by slashing its dividend and further reduce its $700 billion investment portfolio with a possibility of preferred stock offerings.

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