Lansing (Re) Development - Positive Changes

Have you been to downtown Lansing recently?

In the midst of growing foreclosures & higher unemployment around the state, Lansing is in the middle of major changes to it's skyline. Last night, Mayor Virg Benero outlined some new tax incentives to homeowners and investors for home improvements. (read the text of his State of the City here)

This proposal will offer a 50% break on the increased taxes resulting from qualified improvements to your primary residence or improvements to an old, abandoned house to an owner-occupied home. More details will follow when the plan is worked out by the mayor.

But, even more exciting is the number of new housing & retail developments that are going on downtown. Here is a brief list of the projects:

Stadium Lofts:

• In the heart of the new Stadium District, across the street from Oldsmobile Park
• Mixed commercial (1st floor) and residential
• Opening Spring of 2008
• Designated as a Neighborhood Enterprise Zone (NEZ)
• Received designation as one of 23 "Cool Cities" by the State of Michigan

Capitol Club Tower:

• Start Construction in Spring 2008
• 20 story high rise condominiums
• Will become the 2nd tallest building in downtown Lansing
• Downtown river frontage
• Private balconies
• Tax-Free Living (no property tax, no city income tax, not state income tax plus 1.5% interest rate reduction)
• Fine dining & health facilities

Kalamazoo Street Gateway Center:

• LEED Certified
• Energy Efficient
• Green Roof
• Retail & Residential
• 32 one and two bedroom apartments
• 10 Condos
• Near the River Trail
• Near the Stadium District

Ballpark North:

• Overlooks left field at the Lugnuts stadium
• 138,000 sq. ft. of commercial and residential space
• Covered and surface parking
• 6 stories of Condos and apartments

City Market Renovations:

• 3 acre site along the Grand River facing the new Accident Fund Building World headquarters
• 140,000 Sq. Ft. of buildings
• 2 four story residential buildings with a total of 90 to 120 mixed condos and apartments
• 10,000 sq. ft. riverfront restaurant

Motor Wheel Lofts:

• LEED Certified
• Still some available units
• 119 loft style condos
• 15 different floor plans ranging from 590 to 3,000 sq. ft.
• Underground parking
• Exercise Room
• More info

The Arbaugh:

• Corner of Washington & Kalamazoo
• Near Cooley Law School
• 48 residential apartment units
• 20,000 sq. ft. of commercial space
• High ceilings
• Underground parking
• Washer & Dryer in unit
• More Info

View Larger Map

Photos and sources of information from the City Pulse, the Gillespie group.

All of this development and new construction will bring some short term construction jobs but more importantly will attract more companies to look at downtown Lansing for growth and partnership. The Lansing Business Monthly has some really good articles on the developments, click here for more...

the Cashflow Coach

Copyright © 2008 the Cashflow Coach | All Rights Reserved

The Fed Cuts Again

The Federal Reserve Cuts Rates .50%

And leaves the door open for more cuts if necessary

The Fed met yesterday and today to discuss inflation and the economy. They decided to cut the Fed Funds rate (FFR) by .50% to stimulate a slowing economy. There's a lot of debate as to whether we're in a recession or not. Some pundits say that if the Fed starts to talk about a potential recession that usually means we are already in one.

What does this mean for interest rates?


If you have a loan with a short-term interest rate or a rate based on the Prime index, your rate will be declining. The Prime rate is simply the fed funds rate plus a margin of 3%, currently at 6%. Most home equity lines and some credit cards are based on the prime rate.

Other short term indexes like the 1 month, 3 month & 6 month LIBOR rates will also likely decrease. The decrease may not necessarily be by the same .50% FFR reduction and not as quickly. The 1 month LIBOR typically follows the FFR over time.

For long-term interest rates like the 15 yr. and the 30 yr. fixed rates, these rates will most likely be increasing. The last four rate cuts resulted in higher fixed rates in the subsequent days and weeks. For more information on why this happens read my previous post on Fed Rate cuts.

If Goldman Sachs' predictions are correct, then we may see a few more cuts from the Fed to stimulate the economy even more.

What does all of this mean to you? It means you should schedule your annual review call with us, if you haven't already. Interest rates may rise or they may decline, there are so many factors that go into the supply and demand for long term bonds. Make sure you're ready for the next interest rate decline. Stay up to date with by subscribing to our cashflowcoach blog and attend our next Total Wealth Workshop. We want to be your source of valuable information and financial education.

Thank you for your loyalty and your business!

the Cashflow Coach

FED Rate Cuts: How Low Can They Go? part II

After yesterday's emergency .75% rate cut by the Federal Open Market Committee (FOMC), I have received numerous calls and questions as to how low will the FED go and how low will Fixed Rates go? If you read my previous post on the FED Rate Cuts, you know that the two rates don't always move in the same direction, in fact they more often than not, move in opposite directions.

The FED has tried to be as transparent as possible, especially under the leadership of Ben Bernanke. The goal of transparency is to limit "surprises" in what the FED does and says. In some ways the Fed has met this objective by releasing their notes from their scheduled meetings on a timely basis. The challenge arises when the voting members don't agree with each other on policy.

If you want to learn how to guage the direction of interest rates, here are some basic guidelines that I learned from Jim McMahan, a Mortgage Broker in Texas. These are some guidelines that the FED tends to follow:

1. The FED's goal is to keep Core Inflation (C.I.) at 3% or less. (the PCE is currently at 2.16%)

2. Everytime we've had a recession, the FED has taken the Real Interest rate to a negative number in order to stimulate growth:

Real Interest (R.I.) rate = Federal Funds Rate (F.F.R.) - Core Inflation (C.I.)

(1.34% = 3.5% - 2.16%)

3. Real Interest rates have never increased 8 quarters in a row unless inflation (C.I.) was present at 4.5% or greater.

4. Mortgage Rates in the U.S. have been at or below 7.5%, 85% of the time in the last 80 years.

5. Mortgage rates tend to gravitate towards Core Inflation (C.I.) + 3.5% (2.16% + 3.5% = 5.66%)

If the FED continues to follow these guidelines, we could see fixed rates in the 5.6% range.

Cashflow Coach

Copyright © 2008 the Cashflow Coach | All Rights Reserved

FED Rate Cuts: How Low Can They Go?

Will Fed Rate Cuts Equal Lower 30 yr. Fixed Rates?

The Federal Reserve will be meeting on Jan. 29^th & 30^th to discuss the state of our economy. Will they cut rates and if yes by how much? Will the rate cuts lead to decreasing or increasing mortgage rates?

There's a lot of confusion about the Fed Funds Rate (FFR) and the typical 30 yr. fixed rate. Do these rates move in the same direction or are they inversely related?

First, let me provide a simplistic definition. The Fed Funds Rate is the rate the Federal Reserve charges other banks for overnight deposits. It is also the rate the Fed uses to control inflation. If inflation starts to rise above the 1% - 2% "neutral" zone, the Fed will usually increase the Fed Funds rate to slow down the economy. If inflation starts to decrease below the 2% level then the Fed will usually start to cut the FFR stimulate the economy.

A Fannie Mae 30 year fixed rate mortgage is actually a bond, also known as a Mortgage Backed Security (MBS). If you are a bond holder (investor), the worst thing for your bond investment is inflation. If inflation is rising, then the value of your bond (30 yr. Fixed rate) is declining, so as an investor you would require a higher rate of return to compensate for the inflation. Here's an example to help you understand.

Bond Holder/Investor: willing to lend $100,000 to a home owner for 30 yrs. expecting a rate of return (interest) of 6% because inflation today is only 3%.

Borrower/homeowner A: willing to finance the home purchase with a loan of $100,000 for 30 yrs. at 6% interest rate.

Let's say a month from now, inflation jumps to 5% from 3%.

The Bond Holder/Investor is still willing to lend $100,000 for 30 yrs. to borrower/homeowner B but because inflation is 2% higher, the investor will charge 7.5% or 8% to compensate for the loss of value of what that note will be worth in 30 yrs.

This is a simplified example, but the point is that normally when the Federal Reserve decreases the FFR, they are trying to stimulate economic growth which means that inflation will eventually start to rise. The 30 yr. fixed rates will start to rise as inflation starts to rise with the economy.

This is not always the case and we are seeing the exception in today's interest rates. The last few FFR cuts led to declining 30yr. rates and part of the reason is that we may be heading into a mild recession. There's an interesting article from Goldman Sachs anticipating that we will have a recession in 2008 and that the Fed Funds Rate will be cut to 2.5% by the third quarter from 4.25% that we are at today.

If this comes to pass and the FFR rate is reduced to 2.5%, we will most likely see 30 yr. fixed rates in the 5% range.

A number of analysts are expecting a .50% rate cut at the Jan. 30^th meeting. This will reduce your Prime based interest rates like your home equity line and some credit cards. The Prime rate is just the FFR plus 3%.

Stay posted, because I believe that 30 yr. rates will continue it's trend down and should help homeowners qualify for an inexpensive mortgage to take advantage of the tremendous real estate bargains. Let's help move inventory off the market and get our home values back on the rise.

But Wait There's More:

Jim McMahan, a Mortgage Broker in Texas taught me some guidelines that the FED tends to follow:

1. The FED's goal is to keep Core Inflation (C.I.) at 3% or less. (the PCE is currently at 2.16%)

2. Everytime we've had a recession, the FED has taken the Real Interest rate to a negative number in order to stimulate growth:

Real Interest (R.I.) rate = Federal Funds Rate (F.F.R.) - Core Inflation (C.I.)

(2.09% = 4.25% - 2.16%)

3. Real Interest rates have never increased 8 quarters in a row unless inflation (C.I.) was present at 4.5% or greater.

4. Mortgage Rates in the U.S. have been at or below 7.5%, 85% of the time in the last 80 years.

5. Mortgage rates tend to gravitate towards Core Inflation (C.I.) + 3.5% (2.16% + 3.5% = 5.66%)

Cashflow Coach

Copyright © 2008 the Cashflow Coach | All Rights Reserved

Forgiven Mortgage No Longer Taxable

The President signed into law a new measure that would eliminate the tax burden on forgiven mortgage debt (read more). With the rise in short sales and foreclosures across the country, many homeowners were responsible to pay tax on any and all of the mortgage balance that wasn't paid or forgiven. A lot of the time, the homeowner didn't know about this until tax time.

For those of you not familiar with this, let me explain.

If your loan balance is $175,000 and you either negotiate a short sale or end up in foreclosure, the difference between what you owe and what the bank receives is a deficiency. Let's say the bank only receives $150,000 from the sale or auction, your deficiency would be $175,000 - $150,000 = $25,000. The bank could send you a deficiency note where you would be responsible for repaying the $25,000 or they could forgive the deficiency and not make you repay it.

If they forgive the $25,000 they would report to the IRS that they did so and then send you a 1099-C at the end of the year.

Cancellation of debt may not always be taxable. There are some exceptions like bankruptcy, insolvency, certain farm debts and non-recourse loans. PLEASE consult with your CPA or professional tax advisor regarding your situation. For more information, check out this IRS publication.

The Cashflow Coach

Copyright © 2008 the Cashflow Coach | All Rights Reserved

The Key to Rising Home Prices

Higher Demand or Lower Supply = Rising Prices

It's a basic economic principle that when supply increases, prices come down. And, when supply decreases, demand can rise and prices will rise with demand. (a good resource is Basic Economics, by Thomas Sowell)

As Banks take over more and more properties in Mid-Michigan they will seek to sell them as fast as they can at what ever price they can get. This increased supply with low demand has slowed our housing market currently. It will continue to slow down, until we see one of two things happen: Either demand rises (job creation - an inflow of residents) or supply decreases (homes are purchased quickly and taken off the market).

In 2008, one of our Goals at Cornerstone Home Loans is to assist our clients, Real Estate Agents and banks to take 300 REO homes off the market. Our upcoming seminar has 15 minutes devoted to how to get this done with great profit to those who participate. If you are interested in learning how you can be a part of this effort, join us on the 17th and then schedule time to meet with Evan Vanderwey- he will assist you in determining how you can increase your net worth in this opportunity market.

What is an REO home?

REO stands for "Real Estate Owned". For a bank to have Real Estate Owned means that they took over property, mostly due to the fact that these days they are foreclosing on more properties. Banks never want to hold real estate, they always unload it and because they are generally publicly traded companies, they would like to get most of that done in the calendar year of 2008 so they have a clean 2009. What does this mean for you? There will be more REO's on the market that Banks wand to unload in the next 12 to 18 months than ever before in Michigan.What kind of impact can 300 homes have in our area?When ever you decrease supply of anything, the prices rise. So any little bit helps. In Michigan, if we can reduce REO the volume by 10% buy helping people purchase them and take them off the market, then we will increase values.

The best part is that you don't have to do this without profit to you. You can do better by doing good. After all, we live in the best free market in the world. Be a part of it.

Cashflow Coach