All investments depend on making returns, which in turn are affected by macro cycles such as the Great Depression or the dot-com boom. When a market is receding, it makes more sense for long-term, stability-seeking investors to look elsewhere upon first glance. However, in the case of the housing market of many parts of the US, the likelihood of long-term housing depression are still relatively slim. Furthermore, other factors will continue to influence the stability of housing pricing in the short term.

Likely investors in most areas will be able to get great values for some time, but housing prices have statistically increased on a per-capita level for the vast majority of the past century. Even with the 30% decrease in home prices during the years of 1930-33, economic stimulus eventually prevailed. The Depression was also the primary topic of a young Ben Bernanke who, before his current position as head of the Federal Reserve, wrote a 350-page report on how the US' largest recession was due to the blunders of the then newly-created institution. Bernanke has also taken more unprecedented steps to help preserve large investment banks than homeownership, citing a housing bubble which needs a necessary (though unfortunate) correction.

As foreclosure rates continue to increase, many properties are being revalued at less than the price they were purchased at. However, this is only half the story. America's losses are oft distributed unequally. And while the Midwest generally experiencing the worst effects of past recessions, this time may be a little different. Across middle America, home prices have depressed for seven straight months, but several previously hot markets have deteriorated below pre-bubble prices. Southern California and Arizona are two examples that stand out, particularly in terms of how rapidly falling home values have affected previously booming areas.

Now consumers are hit with two difficulties which make housing slumps particularly viscous: rising mortgage payments and loss of home equity, which has restricted lines of credit for homeowners. Furthermore, the advantages of America's size are diminished in a housing slump because homeowners are unable to migrate to other areas. Historically, there have been many such exoduses from economically depressed areas in search of higher wages, but homeowners are increasingly unable to do so unless they sell their homes at a loss.

This stagnation also means that markets with rising values will continue to attract investment, while government intervention may be necessary to lift more blighted areas. The Northwest continues to experience positive property values, despite the prospects oflooming layoffs from troubled financial firms. Texas continues to experience exceptional developmental growth, and relatively stable house prices in his area likely contributed to the Dallas Fed's dissenting vote against the recent record Federal Funds Rate cut. In central Texas, development has continued relatively unabated, in contrast with other areas where property values have dropped more considerably. This reasoning indicates that these markets are likely to accelerate growth as the larger economy recovers from the sub-prime crisis, and will probably be more valuable in the mid-term by comparison to more depressed areas.

Either way, the US recession is not likely to remain too deep, thanks to the generous monetary policy of the Fed. Should current inflationary pressures continue their current trends, home prices will necessarily rebound, although not quickly enough to facilitate speculative short sells. Therefore, for those looking for the long haul, deals are out there.

Ki operates as a realtor working in the Austin Texas real estate market. He writes a blog covering Austin real estate as well as providing a free search of the Austin MLS.

Though the housing bubble deflated about two years ago, its true effects are only now beginning to emerge. In late 2006, when the economy first began to show signs of weakness in the housing market, most economists predicted that a recession was very unlikely, and that any downturn in real estate prices would be localized and mild. In reality, a global downturn is now a real threat, with the final price of the credit crunch projected to exceed $1 trillion dollars.

Not only have falling house prices in the US spread to other markets abroad, they have contributed to massive losses in other areas of lending such as credit cards, and the financial industry, which is now reeling from the US government bailout of Bear Stearns. What does this mean for emerging economies like China and India? In the short term, volatility seems to be the order of the day, with India's fledgling exchanges rocked by jittery investors. Until financial centers and investors can regain confidence, market conditions will be exaggerated. Early trading also plays a psychological role for investors, as news developments impact Asia before Wall Street opens.

The US and the UK both face difficult home pricing corrections which will continue to hamper growth. Most homeowners expect, if not to make a profit, not to sell their houses at a loss, which is a difficult pill to swallow. And if they can't sell their homes for what they think they're worth, then waiting it out contributes to prices falling, thus exacerbating the problem.

While government intervention has been exceptionally forthcoming in efforts to preserve confidence in financial markets, less attention has been given to homeowners who are being foreclosed on %72 more than last year. Hedge funds which invested in these home loans and were mostly falling into the sub-prime category, collapsed as borrowers were increasingly unable to make payments, leading to unprecedented defaults. Many of these sub-prime loans were predatorily given to borrowers with low or little credit history, often without explaining the terms.

This crisis was instigated by a combination of lax internal regulation of the real estate industry and easy credit based on speculation, a potent combination that the global marketplace will do well to remember. In the meantime, global growth will probably slow at least .5% over the next year, which is only so low because of robust growth in Asia.

Another prospect which looms over every government is the specter of inflation, which threatens to overtake the slumping economy as the number one priority for the Federal Reserve and other central banks, who have had to take extreme action to prevent further liquidity losses. The Fed has sold off over $100 billion in auctions and lowered interest rates five times in an attempt to lower mortgage interest rates, but confidence will remain shaky until the full extent of investment bank's sub-prime exposure is realized. Stuck between a rock and a hard place, central banks are taking decisive action in hopes that the economy will level out without pushing inflation to dangerous levels.

Ki operates in Austin Texas as a realtor helping clients looking for Austin real estate. His site provides a search of the Austin MLS along with a free mortgage calculator.

On March 14th, Bear Stearns, the fifth-largest investment bank in the United States, entered a period of insolvency. As growing lack of confidence in the firm's subprime exposure grew, other banks eventually refused to lend to the stricken company, which has existed for over 85 years. Were Bear Stearns a commercial bank, (i.e. institutions that loan money to people or businesses) it would be able to, as a last resort, take advantage of the Federal Reserve's so-called "discount window," thus receiving a government loan at the lowest available interest rate. The reasoning behind making loans to private businesses is sound, because overall confidence in banks is much stronger. But for equally obvious reasons, the discount window cannot by definition extend to institutions that take on risk as their business because they have less or no accountability to taxpayers.

However, after Bear Stearns seemed on the brink of collapse, everything changed. Bear Stearns shares began to falter as investors took flight. The Federal Reserve took decisive action to save the beleaguered bank by guaranteeing a $30 billion loan to their biggest competitor, JPMorgan Chase, so they could buy BS without fear of acquiring more dangerous subprime mortgage-related debt. In effect the government has now bought a troubled investment bank for pennies on the dollar, (their first offer was $2 a share, when BS traded at a high of $170 a year ago) knowing that taxpayers might have to foot the entire bill themselves. At the same time, the Bush administration has maintained that no government bailouts would extend to the financial sector. Moreover, wealthy BS shareholders balked so much at the firesale of their investments that the Fed, under pressure from potential litigation, increased the bid for BS by five times, to $10 a share. This means that, while the potential losses will be felt by millions of taxpayers (many of whom are in danger of losing their homes to foreclosure), while profits will most certainly be reaped by the corporate executives at JPMorgan.

Even with its exceptional exposure to subprime securities, BS is still worth well over a billion dollars. Profit-taking was the name of the game on the heels of the announcement, as day traders bought up huge amounts of BS stock at $2 or $3 a share and sold after the bid increased. By taking responsibility for the BS takeover, the Fed has changed the course of America's financial future. By guaranteeing the discount rate to BS, they implicitly must be able to do so for other investment banks in trouble in the future, which implies continued taxpayer absorption of Wall Street failures without any corresponding kickback from banks. Unless the Fed intend to rein in on banks more as the economy struggles through the recession, this policy clearly demonstrates a dramatically different view of finance than the Federal Reserve of 1913, when there was a real discount window you could use to keep your bank alive. Now, it seems, the most secure economically secure institutions are those most separated from average American lives. Politicians who recognize the increasing resonance of populist messages in the present climate are sure to turn this takeover into a major issue.

Ki works and lives in Austin Texas. As a realtor he helps investors interested in Austin real estate. His site provides a search of the Austin MLS for visitors along with a Austin real estate blog to keep people up to date on the market.

On January 22nd, the Federal Reserve cut their most important interest rate for the fourth time in the past six months, in an attempt to stem the widespread sentiment that the US is in, or headed for recession. Their cut comes at a strange time, because they were rumored, nay, expected, to deliver the cut at their monthly rate-setting meeting next week. But after stock and commodity markets suffered their largest losses in one day since the September 11th attacks, it seemed as though no amount of scheduled economic treatment would be able to rally confidence to a more optimistic level, especially given that the so-called "economic stimulus package" introduced by the White House in recent days actually made the problem much worse. Thus the Fed needed to act decisively, and so, for the first time since 1982, cut their most important rate by three-quarters of a percentage point, signifying how seriously they take the crisis. Yet markets, especially in the US, barely hiccuped upon the announcement: After a brief rally, Asian and European stock indexes closed down by several percentage points, and in the United States no change was seen. Might the Fed be able to wield the same power they used to over economic growth? It seems that an answer to that question is less than forthcoming, but certainly the Fed cut is a very good thing taking into account the historical role of interest rate cuts in similar times. As recently as 2001, with the dot-com bubble rapidly deflating, the mere adjustment of rates to moderately lower values brought the recession down to a dull roar. The biggest difference between that scenario, or for that matter any other previous economic downturn, is that now governments worldwide stand to lose something in a US recession, whereas even in the early 2000's foreign investment had not accelerated to its current breakneck pace. Even in the event of further cuts, credit markets are not required to pass on the savings they make onto their customers, which means that we won't necessarily be able to ever feel the effects of the most recent cut unless, as individual consumers, are able to borrow money more easily, an unlikely possibility under current conditions because, as a whole, Americans spend more than they can save. Throughout history, Americans have saved around %5 of their income, a lofty amount by current standards. This has allowed the US to run a giant deficit with far more stability than it should, because individual liquidity helps to guard against smaller economic bumps that could spiral out of control. A strong possibility is that the Federal Reserve never really had as much power as it would have us believe. As consumer confidence continues to crumble, it doesn't seem to make as big a difference to regular Americans that they can borrow more. They may not want to. And, even if this is an inevitable and beneficial adjustment, a lot of people will lose out in other countries who would normally be unaffected. Fortunately, the Fed isn't accountable to them quite as directly. As long as consumer spending slows, a Fed cut can only do a limited, and possibly impotent, amount of good for the larger economy. Ki Gray is a real estate agent in Austin. His site focuses on Austin real estate and has a Austin MLS search on his site. He also blogs about Austin on his Austin real estate blog.

In recent months, fallout from the sub-prime mortgage scandal has been estimated in the hundreds of billions, up from figures of $100 billion maximum from the Federal Reserve only three months ago. While the Fed has, in an unprecedented move, cut interest rates three consecutive times in as many months, their cuts have always given investors the impression that a later cut was inevitable, cycling in a self-fulfilling prophesy that has played out poorly for the American economy as investment and stocks have been relatively cool. This behavior reflects a prevalent attitude that the situation will get worse before it gets better, and that uncertainty is the single biggest enemy of economic growth. An interesting point of comparison for the Fed's actions in recent months is to use other central banks, such as the European Central Bank (ECB) and the Bank of England (BoE). These banks have taken a somewhat different tact against the sub-prime problems. As early as August, the ECB and BoE decided to tighten lending standards and require that potential borrowers be have informed consent, so as to avoid a repeat problem of this magnitude. The Fed had to be threatened with losing their ability to set policy in a similar fashion for them to take action. When they did, their rules did not apply retroactively in any respect to the predatory loaning, but it did at least set some precedent for responsibility in the mortgage market. These actions beg the question: Why is the Fed so darn sluggish? At nearly every turn, the US central bank has taken too little action far too late. All of their rate cuts have been anticipated like thunder after the lightning starts a massive forest fire. Their one response that wasn't completely acknowledged beforehand was the joint decision by the major banks to inject billions into the financial system overnight, which only worked because it was such a concerted effort. These circumstances bely an important aspect of the Fed's ability to help guide the economy: Sometimes a surprise is in order. The only reason for the Fed's reticence against a large, definitive rate cut is because of the ever-present threat of inflation. Yet as oil reaches the $100- a- barrel mark and food and commodity demand consistently outstrips supply, it seems their ability to exercise control over inflation seems a bit dubious. Granted, this scenario is without precedent, but so would be a 1% Fed cut in a single day. The difference is that a cut of that size would send a message that the economy is in real danger, but that the Federal Reserve is capable of taking that threat seriously and in a timely fashion- something that they have obviously failed to do in recent months. Their single remaining hope is that the sub-prime crisis will not be felt as heavily outside of the money markets it has already impacted, but as credit card companies and other financial institutions that have no primary connection to the crisis have begun complaining that, if people can't pay their mortages, they probably won't be able to pay their mounting credit card bills, the Fed's options seem increasingly limited. If nothing else, hopefully recent events will stimulate quicker action on the part of Bernanke and associates. Ki runs a website covering the Austin real estate market. If you want to start your search on the web they provide a Austin mls search on their site. They also have a blog with information and news on Austin real estate.

In recent days, the Federal Reserve, the European Central Bank, the Bank of Canada, the Bank of England, and the Swiss National Bank have teamed up to auction $110 billion off to world money markets in order to ease the recent liquidity crisis. But what is liquidity? Why should banks auction off money to deal with it? And how does inflation play into this phenomenon? Well, for starters, liquidity refers to the amount of money available in a given market that can be loaned from one entity to another. If an economy is looked at as a machine, with thousands of interconnected parts, then liquidity functions like oil, keeping all the moving components lubricated. If there is not enough liquidity in the market, loans become more expensive and time-consuming, and economic growth is inherently restricted because banks are less willing to lend to each other, in case they are unable to cover their deposits. The Northern Rock bank runs in England are a perfect example of what happens when a bank cannot make good on their deposits. In today's globalized economy, banks depend on lighting-fast transactions of large sums through all parts of the world. If they are wary of lending to each other, as recent events have shown, currency supplies start drying up. With this in mind, the sub-prime crisis of recent months seems poised to further restrict growth, especially in the US. The central bank's decision to add money into the economy is designed to keep cash-flow consistent in markets, which will also hopefully help boost investor confidence. Unfortunately, the sub-prime debt still exists, and banks are unlikely to lower the inter-bank borrowing rates much until all the debt is declared on balance sheets. And with 2 million more defaults likely to occur within the next year, the crisis is far from over. This injection of cash implies that central banks are trying to stem a problem they recognize to be quite severe, as they have never taken such concerted, coordinated action before. But their course will certainly impact the other primary concern, that which central banks must balance liquidity with: inflation. This refers to price increases, which make currencies less valuable. If it takes $10 tomorrow to buy a Big Mac, then the US dollar has lost about 40 all at once, likely the outcome would be different. Only time will tell whether the huge cash injection will be enough to help banks lower their rates back to more growth-friendly levels. Working as a realtor in Austin Texas Ki runs a site about Austin Texas real estate which provides users a map based Austin MLS search. Also if you are looking for in depth commentary on real estate market Ki has a blog covering Austin real estate.