Will Interest rates drop to zero?

Just how far will the Federal Reserve go in lowering interest rates to save the country from a long and painful recession?

Ratcheting its key rate from the current 1 percent all the way down to zero can’t be ruled out. But there are risks in taking such an unprecedented step: namely, that it wouldn’t work in turning around the economy and breaking through a stubborn credit clog.

Eventually, a zero percent rate – virtually “free” loans for banks – could trigger a speculative investment frenzy that could feed a bubble that pops, wreaking havoc on the economy. Former Fed Chairman Alan Greenspan – now partly blamed for the current problems – has called today’s crisis a “once-in-a-century credit tsunami.”

Emphatic as it was, the bold rate reduction the Fed ordered Wednesday and the possibility of even lower rates ahead are no panacea. Even lower rates won’t necessarily entice skittish Americans to spend and squeezed banks to lend more freely – forces at the heart of the economic woes.

With any luck, though, the Fed’s action will cushion the blow to the country, which is on the brink of – or already in – its first recession since 2001.

The Fed slashed its key rate by half a percentage point to 1 percent, a rate not seen since 2003 and part of 2004. The rate hasn’t been lower since 1958.

In a gloomier assessment of the economy, Fed policymakers said “the pace of economic activity appears to have slowed markedly” as consumers and businesses cut back on spending, and economic slowdowns in other countries sap demand for U.S. exports, which have helped keep the economy afloat.

Moreover, the “intensification of financial market turmoil” is likely to weigh on consumers and businesses, further reducing their ability to borrow money, the Fed said.

Underscoring the Fed’s sense of urgency is this fact: It took just 13 months for Fed Chairman Ben Bernanke, a student of the Great Depression, to ratchet down rates to the 1 percent mark. It took his predecessor, Greenspan, 2 1/2 years.

Many economists predict Fed policymakers will drop the rate again to half a percentage point, which would mark an all-time low, on or before Dec. 16 – its last scheduled meeting of the year. The Fed left the door wide open to more rate cuts, pledging to “act as needed” to revive the economy.

“We are in a crisis situation and everything is on the table,” said Richard Yamarone, an economist at Argus Research. “If conditions deteriorate considerably, the Fed could go down to zero. It is absolutely a possibility, but I don’t believe it is likely.”

Yet even if the Fed were to lower its key rate to zero, that might not reverse the bunker mentality of consumers and lead them to ramp up spending.

More than in recent recessions, consumers have retrenched as vanishing jobs, shrinking paychecks and nest eggs, and sinking home values have made them feel less wealthy and less inclined to spend. Consumer spending – the single biggest chunk of overall economic activity – probably fell in the July-to-September quarter. That would mark the first quarterly drop since late 1991, when the country was emerging from a recession.

And just because borrowing costs are cheaper doesn’t mean banks will feel more inclined to increase lending to people and businesses.

“The problem is not the interest rate,” said Sean Snaith, an economics professor at the University of Central Florida. “It is that no one is willing to loan, regardless of what the rate is. Lower rates will not make the problem go away. The credit crunch will take time to resolve. This is another action to just chip away at the gridlock in this economy, but we shouldn’t expect a miraculous turn of events from this.”

The Fed’s move Wednesday meant the prime lending rate used to peg rates on home equity loans, certain credit cards and other consumer loans dropped to 4 percent. Even if the Fed were to cut its main rate to zero, the prime rate would fall to 3 percent but no lower.

The Fed’s previous rate reductions, in fact, were blunted by the credit crunch. The Fed slashed rates by a whopping 3.25 percentage points, from 5.25 percent to 2 percent, between September 2007 and April 2008, one of the most aggressive campaigns in decades. On Oct. 8, the Fed lowered rates again to 1.5 percent in a coordinated action with other central banks around the world.

The Fed probably would want to stop short of zero, so it saves precious ammunition – meaning additional rate cuts – should the economy take a turn for the worse later on, some economists said.

Others believe the Fed would want to avoid the fate of Japan, which failed to revive its economy even after its central bank slashed rates to zero in 1999 and kept them there for six years before bumping them up again. Japan became mired in a decade of lost growth in the 1990s after real-estate prices collapsed. That caused a severe bout of deflation, which is a destabilizing drop in prices.

“Cutting rates to zero is a fairly desperate measure, and a lot of stigma is attached to it,” Snaith said. “It would bring on comparisons to Japan.”

There’s also the worry that dropping rates to all-time lows would feed the type of speculative boom and painful bust that the country is now suffering through. Greenspan lowered rates to 1 percent in summer 2003 as he sought to aid the economy’s slow recovery from the 2001 recession and fend off a remote – but dangerous – risk of deflation. He kept rates at that historically low level for a year.

Critics contend that those low rates fed the housing bubble and lax lending standards that eventually burst and imperiled the economy. The meltdown drove up foreclosures and forced financial companies to rack up huge losses on soured mortgage investments, laying low storied Wall Street firms and causing banks to fail.

Instead of dropping rates to zero, the Fed probably will turn to other weapons to battle the crisis.

The Fed has already created first-of-its-kind programs, such as getting cash directly to companies by buying up mounds of “commercial paper,” the short-term debt firms use to pay everyday expenses such as payroll and supplies. That program, which started Monday, is helping to relieve credit stresses, economists said. The Fed also is providing loans to banks, has moved to provide a financial backstop to the mutual fund industry and has injected billions of dollars in financial markets here and abroad.

The Fed could opt to expand programs by enlarging loans it’s now making, providing loans to other types of companies, or buying more and different types of debt. The Fed’s balance sheet has doubled to $1.8 trillion in recent months, reflecting those other activities to get credit flowing again.

Because the Fed has wide latitude in these areas, many economists believe Fed policymakers are more likely to continue this route than to lower its key rate to zero.

No matter the relief tactics, though, the economy is due for more pain. The unemployment rate, now 6.1 percent, could hit 8 percent or higher by next year. Home prices are likely to keep sinking for some time, and nest eggs will continue to be battered.

“We’ve been in pain, and it will get much more severe over the next six months,” predicted Mark Zandi, chief economist at Moody’s Economy.com. “The economic damage of the financial panic has already been done, and the Fed is trying to limit the damage as best it can.”

Statement from Sarasota Association of Realtors

Despite a late summer and early fall dominated by depressing economic news across the nation, property sales in the Sarasota MLS did not see a dramatic change from the previous month, continuing a traditional slower summer sales season.

Overall sales stood at 440 in August, only slightly lower than the 454 in July. In fact, sales in August 2008 were actually higher than in August 2007, when only 430 overall single family homes and condos were sold.

The biggest decrease from last year was in condominium sales, which fell to 84 this year compared to 122 last year. The August 2008 report continued to show strength in pending sales, which stood at 536, just off last month's total of 584. In August 2007 only 456 pending sales were reported, which forecasts a stronger market for the fall and winter months. Pending sales reflect contracts executed by buyers and sellers, and current numbers indicate more closings likely in the upcoming months.

Sales prices for single family homes decreased somewhat in August, falling to $226,250 from last month's median of $250,000. But condominium prices saw a resurgence to $295,000 from July's $252,500. This means most property is apparently holding its value better locally, which also means the local market is doing better than the statewide and national downward trends.

"The national financial crisis has obviously dominated the news this month, but fortunately our market appears to be weathering yet another storm very well," said Helen Sosso, 2008 SAR President. "These are difficult times for many businesses and industries, and the real estate industry is no exception. But the Sarasota market is blessed with many fundamental strengths and attractions, one of which is our highly skilled and professional group of real estate brokerages and agents. In difficult times, the guidance of member agents in the SAR is vital to achieving your most advantageous property transaction."

Inventory levels in August 2008 dropped for the sixth consecutive month, and are the lowest they have been since late 2005. There were 6,461 single family homes listed, compared to 8,677 in July 2008, and 2,407 condos listed, compared to 4,599 condos listed last month. However, some of this discrepancy is likely attributable to the new MLS system which became operational in early August and resulted in the elimination of much of the duplication in property listings between the five area member associations (including the Manatee Association of Realtors).

The current local market, despite the negativity in the national news, continues to demonstrate statistically that we have a great selection of more affordably priced housing for buyers to visit and purchase. In addition, declining inventory levels normally indicates the market is returning to a more historical balance, which eventually leads to normal, long-term price appreciation.

Could this happen in Longboat Key?

Residents of the city of Petah Tikva, a suburb of Tel Aviv, have been asked to take their pooch to their local vet, where a DNA sample can be collected.

The city hopes to build a database so faeces can be matched to registered dogs and their masters.

Owners who scoop up their dog's poo and put it in specially marked bins on Petah Tikva's streets will be eligible for rewards - like pet food coupons and dog toys.

But owners who leave their pet's droppings on footpaths could face a fine.

If the voluntary programme takes off, the city will consider making it mandatory for owners to provide DNA samples from their dogs.

Tika Bar-On, the city's chief veterinarian, came up with the plan and said so far, dog owners had reacted positively to the initiative.

"[Residents] are co-operating because they want their neighbourhood to be clean," she said.

She added there was many other applications vets could use the DNA database for - such as research of genetic diseases, investigating canine pedigree and identifying stray animals.

Sarasota Ballet Lectures

Oct. 1
Sarasota Ballet will be holding a series of five lecture
demonstrations at the Historic Asolo Theater. Hosted
by guest choreographers and company dancers, the
lectures will preview and examine the major works that
will be performed during the 2008-2009 season. Cost is
$25 for each lecture or $100 for all five. Call 941-360-7399

Prudential Real Estate Affiliates wins J.D. Power and Associates award

Prudential Real Estate is ranked “Highest in Satisfaction for Home Sellers Among National Full Service Real Estate Firms,” in J.D. Power and Associates’ 2008 Home Buyer/Seller Study SM.
The inaugural study measures customer satisfaction of home buyers and sellers with major national real estate companies and includes 3,670 evaluations from 3,205 respondents who bought or sold a home between April 2007 and June 2008.
Among home sellers, Prudential Real Estate achieved a score of 793 on a 1,000-point scale. “We are very proud of this distinction, as it underscores the quality of our affiliates and their hard-working sales professionals,” said Laurie Keenan, president of Prudential Real Estate. “This recognition is especially rewarding because it comes from a most discerning group: our customers. To be sure, our sales professionals are the local experts, and sellers appreciate their ability to market and price homes right.”

Red Sox for Sarasota ?

Officials trying to prop up the sagging economy here are convinced they have found a remedy: annexing a piece of Boston Red Sox.
Boston’s on-the-field success in recent years has made the organization a darling among fans and marketers so the emerging power of the Red Sox name, fueled by frenetic fans who travel widely to see their team play, has created a level of interest from Sarasota. Officials here are trying with all their civic might to poach the club’s spring training operation from Fort Myers, where it has been since 1993.
There have been friendly calls from local politicians to team executives, a pledge to build a replica of Boston’s Fenway Park, and discussions about both a public land purchase and an increase in the tourism tax to pay for the stadium and improvements to an existing minor league complex. A grass-roots organization called “Citizens for Sox” has even formed to help in the effort.
The officials here say the team would attract more tourists and businesses than any other major league franchise. They hope the relocation would help lift real estate prices, increase the number of flights to and from Boston and boost construction.
“This is not just about baseball,” said Joe Barbetta, a Sarasota County commissioner. “It is about the Red Sox brand.”
Kelly Kirschner, the commissioner from the city of Sarasota who has teamed with Barbetta to try to attract the team, added from across the table, “We have never seen 4,000 people get together about anything, let alone a baseball team.”
The Red Sox are among a handful of teams with the flexibility to leave their spring training cities because they hold opt-out clauses in their current deals. The club’s existing agreement with Lee County allows the team to leave Fort Myers after 2009 spring training if it pays $1 million. After that, the amount decreases by $100,000 a year until the agreement expires in 2019.
On Tuesday, Sarasota County voted to buy 1.2 acres in downtown Sarasota for $4.8 million. The plan calls for a 10,000-seat stadium next to the site of Payne Park, where the Red Sox held spring training from 1933 to 1942 and from 1946 to 1958. Officials in Sarasota have been in discussions with the Red Sox for several weeks, and they expect to make their formal offer by mid-September.
Sarasota finds itself searching for a team because the Cincinnati Reds decided last year to leave for Goodyear, Ariz. To find a new team, officials began studying which clubs could relocate and soon fell in love with the idea of landing the Red Sox.
“Certainly it’s because their star has never been brighter,” said John Yarbrough, the official in Fort Myers who is in charge of the effort to keep the team. “There is no team, except for maybe the Yankees, that has the following they have right now. It’s a sign of the slow economy that more municipalities haven’t come out pushing for them.”
The Red Sox have done what seemed nearly impossible five years ago. In 2004, they rallied from three games down to the Yankees in the American League Championship Series and went on to win the World Series for the first time since 1918. Then they won another title last season.
Sarasota, which was home to a Class A affiliate of the Red Sox from 1994 to 2004, appears to be the only city beyond Fort Myers interested in taking them, although Disney officials are also making a quiet push. Disney World is already home to the Atlanta Braves during spring training at its Wide World of Sports complex in Orlando. The Red Sox’ chief operating officer, Mike Dee, toured the center in July.
But the interest from Sarasota appears to be the strongest, and its officials argue that the benefits of attracting the team would exceed the economic activity associated with a schedule of roughly 17 spring training games. Many of Sarasota County’s approximately 350,000 residents, like those elsewhere on Florida’s Gulf Coast, are retirees from the Midwest.
But the officials say the Red Sox could attract more people from the Northeast. “If the Red Sox come, it would bring in direct flights from Boston, and it would attract people from New York to New Hampshire,” Barbetta said, referring to his hope that those people might decide to relocate to or retire in Sarasota.
A consultant’s study for Sarasota showed that the Red Sox would generate $46.5 million a year in economic activity, nearly double the amount associated with the Reds. And in the 2007 edition of “Turnkey Team Brand Index,” a study that ranks the brand strength of 122 teams in Major League Baseball, the N.F.L., the N.B.A. and the N.H.L., the Red Sox finished fifth in fan loyalty among all major franchises and first in baseball. (The New York Times Company owns 17 percent of New England Sports Ventures, the parent company of the Red Sox.)
“We asked fans how much a team is a part of their daily routine, to what degree do they support a team, how often do they watch them on TV and how much they go to games,” said Len Perna, the president of Turnkey Sports and Entertainment. “There is no doubt that their performance on the field over the past few years has had an impact on their brand, but there are other teams that have won and don’t have the same glow.”
He added: “What makes them different is that they have done everything else right. This group of owners has made Fenway Park part of the team’s future and not pushed for a new stadium. That endeared them to many Bostonians, and the loyalty has extended from there.”
But Wayne Genthner, a charter boat captain who lives in Sarasota, is wary of the display of affection by public officials.
“They’re in love with them all right — you know how that can deceive you,” he said.
Genthner spoke out this week at a public meeting regarding the purchase of land for the stadium.
“It’s corporate welfare for professional baseball, and they have basically said you can eat out of the public trough,” he said in a telephone interview Wednesday. “We need help developing tourism from September through December. That is when we really need the help. People don’t vacation down here, and that is where we need the help. I want them to spend on tourism, but they need to be smart about it.”
For their part, officials 80 miles down the coast in Fort Myers say they want to keep the Red Sox. But they do not seem to be nearly as active about their interest as their counterparts in Sarasota. Fort Myers is also home to the Minnesota Twins during spring training, and city officials say the local economy is built around both teams.
Yarbrough said he had told the Red Sox that Fort Myers would make a counter-offer after Sarasota made its proposal.
“March is the lifeblood of our economy and our community,” Yarbrough said. “Could we survive without two teams? It would hurt our year-round economy.”
Dee said the Red Sox had noticed a clear difference in approaches from the cities.
“The outpouring of discussion and interest from Sarasota has been tremendous — it has been comprehensive in nature, and everyone has been very aggressive and supportive,” he said. “In Fort Myers, for whatever reason, they decided to wait it out.”
He added, “But they are confident and convinced that Sarasota is going to be unable to do this, and they are sort of gambling on this.”
What will Sarasota do if the Red Sox shun the offer?
“We would pursue another team,” Barbetta said. “And we won’t give up.”

Sarasota Sales Statistics July 2008

The Sarasota MLS saw a traditional summer drop in sales for July 2008 compared to the
previous month, but pending sales numbers remained strong, forecasting a normal fall
sales rebound.Overall sales stood at 454 in July, dropping off from the 559 reported in June 2008.Single family home sales in July 2008 stood at 326, while condominium sales dropped to 128. Sales had been increasing each month in 2008 prior to a June dip, and July continued the downward trend.The July 2008 report continued to show strength in pending sales, which stood at 584. In July 2007 only 476 pending sales were reported, which forecasts a stronger market for the late summer and early fall months. Pending sales reflect contracts executed by buyers and sellers, and current numbers indicate more closings likely in the upcoming months.Sales prices appeared to level off in July, remaining at a median of $250,000 for single family homes, while dropping slightly for condos, from $275,000 in June to $252,500 in July. This means property is apparently holding its value better locally, bucking a steeper
downward trend statewide and in many markets across the nation.“We tend to see a different market segment of buyers during the summer months,” said Helen Sosso, 2008 SAR President. “When families are in the market for a home, whether deciding to purchase after renting, or upsizing as the family grows, they tend to search for
homes during the summer months prior to the start of the new school year. These families traditionally shop for more affordable homes near good schools, which is why we normally observe a moderation of the median sales price during the summer. I expect a brisk return of high-end buyers when our seasonal residents return during the fall and winter.” Sosso also noted that while the prices have moderated locally in general, statistics prove that even after the drop in local median sales prices over the past two years, the median sale price in July 2008 is still 9.6 percent higher than five years ago for single family homes, and a whopping 22 percent higher for condominiums.Inventory levels were lower in July 2008 for the fifth consecutive month, and are the lowest they have been since February 2006. There were 8,677 single family homes on the market, compared to 9,108 in June 2008, and 4,599 condos listed, compared to 4,765 last month.The current market statistics continue to reflect a good selection of more affordably priced housing for buyers to visit and purchase. The decline in inventory levels traditionally indicates the market is returning to a more historical balance. As the market approaches equilibrium, the buyer’s market we’ve been experiencing will likely disappear, and price appreciation will return to the market.