Fed’s Efforts to Revitalize Economy Bolstered by Strong Housing Market

By Korollos Shalaby

The Federal Reserve’s efforts to revitalize the United States’ economy are being bolstered by an increasingly robust housing market.

With interest rates remaining near record lows and home values on the rise, homeowners and banks are beginning to see their financial situations improve. According to Bank of America Corp. and Deutsche Bank AG, this is making it easier for financial institutions to give out more lines of credit.

“We’re in the very early stages of a reinforcing cycle,” said Michelle Meyer, a New York-based senior economist at Bank of America, the second-biggest U.S. lender by assets. “The Fed has been quite impactful.”

Meyer has predicted that monthly housing starts could reach upwards of 1 million by the end of 2013, as opposed to 894,000 from last October. According to Deutsche Bank’s Joseph LaVorgna, Residential construction may also continue to improve the housing market. It has been projected that construction may add to the nation’s GDP for the first time since 2005. And if the current trend continues, construction may account for around 1 percent of the U.S.’s GDP by the next year.

“The one thing missing from this economic recovery was a healthy contribution from housing, and we might finally be on the cusp of that,” said LaVorgna, chief U.S. economist for Deutsche Bank in New York, who predicts the GDP may grow about 2.5 percent in 2013. “Housing is going to be integral to the economy. We’re assuming it continues to do some of the heavy lifting.”

In its effort to continue to improve the housing sector, the Fed indicated last September that it would buy nearly 40 billion of mortgage backed securities to stabilize the market. This so called “quantitative easing” has had its critics though it has certainly shown some signs of success.

Borrowing costs were driven down to all-time lows thanks in part to the central bank’s decision to continue to purchase large volumes of housing debt. Now, the average rate for a 30-year fixed mortgage is 3.32 percent. This is only slightly higher than the all time low of 3.31 during the previous week.

Home prices in the U.S. continued to rise from the previous year and saw the largest increase since June of 2006, according to the data provider CoreLogic Inc.

The sales for new and existing dwellings combined rose to 5.16 million for October, which was 40 percent higher than June of 2010.

Many economists are optimistic at the pace of progress, though it is equally true that this optimism has been largely tempered for quite some time with the knowledge that things could go very wrong very quickly.


“Monetary policy is working,” said Yelena Shulyatyeva, a U.S. economist at BNP Paribas SA in New York. “What we’ve seen is a very robust housing recovery this year, particularly in prices. It’s kind of an accelerator for other sectors of the economy, consumption in particular.”

With a deficit fight still looming large in Washington, it’s hard to predict what impact if any it will have on housing.

Korollos Shalaby is a nationally acknowledged mortgage expert with over 6 years experience as a loss mitigation expert and mortgage finance consultant. He has owned several companies and has been at the forefront of all lending and banking practices since 2006.

How to Bring Your A-Game When Buying A New Home

By Korollos Shalaby

In legal terms, buying a new property might seem like a simple process, but there are important aspects to consider, especially if it is a presale. Here are some things you might want to consider when you are buying a new home.

1. Essentials. You have to know the name and corporate name of the builder or developer and, where applicable, their legal representative. Try to get a feel for the reputation of the company.

2. References. Call the developer and ask that they give you references. Ideally, you can talk to customers who already inhabit the buildings. Discuss your experiences with the developer.

3. Ground conditions. Verify that is not mortgaged and inspect the land where the building will be. Verify the legal situation of the house with the Public Registry of the Property.

4. Advanced Work. If the developer is not known or has no references, it's better to not buy in presale. You may want to get another option that gives you security, though you may have to pay a higher down payment or wait a little longer for delivery, but your peace of mind is priceless.

5. The "fine print". Look over the format of the contract that you will be signing. Look into the penalties for cancelling the contract. However, it is always advisable to have a lawyer advise you.

6. Checklist. Besides the contract of sale, there must be a contract between the developer and the customer, which will detail the date of completion of construction and characteristics of it.
Make sure the contract contains:
• Square meters and floor plans. You must also specify whether the property will feature a balcony, private garden, and so on.
• Parking spaces (location and size of them).
• Finishes (closets, carpet, flooring, bathroom furniture and kitchen).
• Amenities. What are its features and delivery dates.


7. Legal details. What are the individualized property taxes that you will be paying for the house?

8. Services. Confirm that the house has adequate infrastructure to supply electricity, water, sewer, roads, a vehicular internal connection to the urban road network and other equipment works. Licenses, authorizations and permits should be by your respective consultant.

9. Ready. If a home is ready for delivery, in addition to the above, make sure that the distribution of the property measures and finishes are those agreed in the contract. Check that the furnishings, fixtures, hydraulics and gas are in perfect condition.

10. Zero debts. Check that the developer has not left debts of light or water. Request recent bills paid.

While buying a home through the presale offers a flexible and advantages, you should always exercise caution to protect your capital. Do not be dazzled by the first pretty  house shocking or a model home being shown by a good salesman. Visit several places, question and compare.

Korollos Shalaby is a nationally acknowledged mortgage expert with over 6 years experience as a loss mitigation expert and mortgage finance consultant. He has owned several companies and has been at the forefront of all lending and banking practices since 2006.