Case-Shiller Housing Index Drops 17.7%

Mid-Day Market News & Commentary by Chris McLaughlin, October 28, 2008
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Investors got a bit of relief today as overnight stock markets fared much better. Japan’s Nikkei surged 6.41% while Hong Kong’s Hang Seng index jumped 14.4%. And the European stock markets, Britain’s FTSE 100, Germany’s DAX, and Frances’ CAC-40 all were higher in morning trading. At noon today the Dow Jones Industrial Average was up 114.85 to 8290.62.

The S&P Case-Shiller Home Price 10 city index dropped 1.1% for the month of September, marking the 25^th consecutive month that home prices have declined, and indicating a decline of 17.7% for the year. The 20 City index dropped 1.75% for the month and 15.90% for the year. The biggest drop was in Phoenix, which had a 30.7% decline in prices, but other cities were close behind: Las Vegas dropped 30.6% and Miami plunged 28.1%.

Investors are on Fed watch today … the most highly anticipated Fed rate cut should be announced sometime Wednesday, but there could be a surprise announcement today. Most analysts expect at least a 50 basis point cut, while others believe the Fed could go as far as a full 1 percentage point reduction. The prime rate, which is the rate that banks will lend to its best customers, is currently 4.5%, but a full percentage point reduction would drop it to 3.5%. Many credit cards are tied to prime as are auto loans, thereby freeing up cash for customers.

Now on to our real estate investor section…

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It Can’t Happen Here…Or Could it?

The recent news about Argentina’s pension take-over brings to mind the famous book penned by Sinclair Lewis “It Can’t Happen Here”…or can it? Argentina’s nationalization of private pension system should send a shudder down the spine of every middle and upper class American who wonders about the health and safety of their own retirement fund. Combined with rising rates of unemployment and drastic cuts to employee benefit plans including the elimination of matching funds like that announced by GM just days later Americans should begin thinking about new ways to fund a retirement.

As if the spectacle of watching the balance of your portfolio dwindle week after week wasn’t enough, the prospect of government confiscation of pension funds brings to mind images of political extremism considered impossible on domestic soil. Could America one day follow the steps of Argentina and nationalize the entire pension system in order to offset losses against a burgeoning balance sheet? Well, there is now at least one precedent but even if the United States doesn’t take such a bold position as Argentina, your retirement funds may not be as safe as you hoped even if the market returns to its formerly robust status. Here’s why…

1. Taxing the Un-Taxed. Feel pretty safe about those untaxed benefits? Not so fast! With the stroke of a pen you might find formerly low (or no) taxes suddenly fully taxed at any time in the future. The age-old idea about cashing out retirement funds when you are in a lower tax bracket may simply not work in the future. With the national debt and deficit growing at unprecedented rates, it isn’t far fetched to think Congress may one day be tempted to grab that pot of gold in the form of taxation.

2. Inflation. As if inflation alone wasn’t harsh enough to savers, when it is combined with a progressive income tax it results in a double sting – not only do your dollar purchase less but you are now in a higher tax bracket.

3. Broken Banks. By now you would need to have lived in a cave to not realize the entire financial system is in serious trouble. Although the FDIC limits have been increased through 2009, what guarantee is there after that period of time?

4. Sick Social Security System. If you are close to retirement age then you may see some of this in your future but otherwise, don’t count on it to be there in the future. Social Security benefits are already at risk of higher taxes, fewer benefits and subsistence levels of support.

5. Increased Volunteerism & Make-Work Programs. If you never want to retire then congratulations…there is a good chance you won’t with the current status of events. Unfortunately, for those that would like to live a little of the good life it will cost you. Government defined benefits and programs of the future are already slated to go hand-in-hand with volunteerism and make-work initiatives.

Want to take control of your financial future via the ultimate diversification tool? Jump into short sales and derive an income – and lifestyle- to fit your needs. Not sure it’s the right move for you? Consider the benefits of investing in short sale and foreclosure properties:

1. Flexible – can hold property as an individual, LLC, corporation, trust or whatever type of entity that provides the most favorable tax treatment in the future.

2. Tangible – physical assets tend to hold value during periods of rapid inflation and shelter/housing remains a basic need even during times of deflation. Unlike paper wealth (stocks, bonds etc) the actual house and property retains an intrinsic value that cannot go to zero no matter what happens in tomorrow’s markets.

3. Income – establish your desired retirement income potential via sales, rentals, leasing, factoring or a host of other transaction types.

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