The Federal Reserve System voted to reduce the federal funds rate by 1/2% today, with the rate dropping from 5.25% to 4.75%. You can view the press release here. What does it all mean? The federal funds rate, in case you are unfamiliar, as defined by Wikipedia, is the rate at which banks charge other banks to lend money overnight to keep their reserves at the appropriate level. You can learn much more at the Fed’s website.

What is their hope in lowering this rate? Basically, banks will save money and pass the savings on to you in the form of lower interest rates on loans and mortgages. Will this actually happen? That depends on a variety of factors, which I will discuss in the coming days and weeks.

The Mortgage Banker’s Association (here’s a link to the Mass. chapter) announced today that the percentage of homeowners receiving foreclosure notices has reached a record high of 0.65%, up from 0.58% in the first quarter. You can find one of the many articles about the MBA’s release here. What’s more astounding than these disturbing numbers is the fact that the delinquency rate, those who are behind on mortgage payments but have not yet started the foreclosure process, is at its highest rate in 5 years - 5.12% of all loans are currently delinquent. This is a huge amount of money that has not been paid, and it is just one of the numerous causes of new lending restrictions.

The chief economist for the MBA, Doug Duncan, states that the huge job losses in midwest states like Ohio, Indiana, and Michigan from auto industry and other manufacturing job cutbacks. In fact, according to Duncan, the problem shows itself the most in Ohio, where the number of mortgages that are in foreclosure or are more than 90 days late is more than twice the national average.

What else accounts for this growing problem? Warm weather states. Florida and California have seen flocks of prospectors buy up property and develop areas during the housing boom. Now that the boom has gone bust, those same prospecting investors are out of cash and are unable to keep up on mortgage payments. Nevada and Arizona also have seen these same problems in recent months.

Most experts predict that foreclosures and defaults will continue to increase in the short term. More explanation on further reasons for this later.

Money magazine partners with CNN to do an online site, creatively titled CNNMoney.com. A recent article they published contains great, if cursory, information. As part of their ‘Money 101′ series, the article details the top 10 things to know about buying a home, and is especially useful for the first time buyer.

Some highlights: use one of the many cost calculators that are available for free online, like the one found here. A basic mortgage calculator will help you figure out how much house you can afford. That knowledge, combined with a preapproval letter from a lender, will inform you what price range you should be looking in - the best thing to know before you start your search so you aren’t heartbroken when you see a home you like and discover that you cannot afford it.

Another tidbit from this article: buy in an area with good schools. Whenever you decide to pack up and move, your home will always have better market value in a town that has a quality educational system. This applies to everyone, even if you don’t have kids.

The best piece of advice they give: get professional help!

“Even though the Internet gives buyers unprecedented access to home listings, most new buyers (and many more experienced ones) are better off using a professional agent. Look for an exclusive buyer agent, if possible, who will have your interests at heart and can help you with strategies during the bidding process.”

I couldn’t have said it better myself! Your best option is to hire an EBA - we are 100% loyal to you all the time and protect your confidentiality in all dealings. We at Buyer’s Choice are not salespeople. Rather, we are consultants who will guide you along during this important process.

If you are a first time buyer, take time to check out this article along with many others in the ‘Money 101′ series. The advice the Money folks give could put you on a path to comfort and prosperity, and at the very least, most will learn something new.

Recently, the North Shore Association of Realtors released updated information on market statistics in their area. In case you are curious, you can check which towns comprise the NSAR area. The numbers are rather discouraging, and include January through July statistics as compared with the same months from a year ago. The average sale price for single family homes has dropped 3.3% in the past year, with condo prices dropping a modest 1.6%, while multi-family average prices have dropped 12.4% versus the same seven months in 2006. That translates to a more than $50k drop in average sale price for multi-family homes. Looking to invest in real estate and/or become a landlord? The time may be right to pick up that triple decker you have had your eye on.

Single family homes stayed more than a month longer on the market on average, going from just over 112 days to 146, or almost five months, an increase of 30%. Condos spent 5.5 months on the market, up 34% from 2006, and while multi-families spent the least amount of time on the market, their average DOM (days on market) rose nearly 42%, from 97 to an average 138 days. Are the buyers still out there? Yes. But they are waiting in the wings until the property they like drops thousands of dollars as it lingers on the market.

The number of units sold dropped across all three categories as well, with multi-family properties selling 30% less units versus 2006 sales. Over 1800 single family homes were sold in both 2006 and ‘07 in the North Shore area (see above link for town list), with a negligible 2% decrease. Condo sales dropped more than 11%, with 1146 condos selling from January to July 2006, while only 1013 were sold over the same months this year.

What does all this mean? It means what everyone has been seeing and hearing about - too much inventory that is priced too high with not enough qualified or interested buyers buying up that inventory. It is simply a part of the real estate cycle - the market is correcting itself and evening out as it tends to do at least once per decade.

Think the prospect of another act of terrorism in the U.S. is scary? Perhaps we should be more concerned about the subprime mortgage crisis, at least in the short term, as possibly having the largest effect on economic stability here at home.

At least that’s what the folks from the National Association for Business Economics seem to think, based on the published results of their latest survey, published on August 28th.

I encourage you to look over this article as it provides a good sense of the current mindset of a sampling of NABE members, who are the most influential and prestigious economic leaders in business.

A positive sidenote to this gloomy prediction about the country’s economic stability is that the outlook for housing over the medium term (5 years) remains rather positive, with a majority of members thinking that prices will continue to remain steady with a slight increase in home prices. In fact, 39% of NABE members surveyed expected average home prices to increase 2%-6% over the next five years, a good sign that the current rut the housing market is in should shift back to its usual modest gains year over year.