You Save Real Estate Blog

***This story isn’ a ‘how to use your 401k to buyer real estate.’ I suggest you obtain legal and tax advice before taking action. I’m writing this article because it is real estate related and I think it is interesting but clearly this technique isn’t for everyone.***

This technique wasn’t for me when I looked into buying property a few years back. I haven’t even done the math to see if I would have been better or worse moving funds from stocks into real estate.

Using a self directed 401k in a real estate transaction must be 100% hands off. You can’t use your lovely mountain property for personal use; not even once. If you do, taxes become immediately due and you’ll owe a 10% penalty for making an early withdraw from your 401k before age 59. You are required to hire an independent third party company to manage the property. The restrictions are plenty and the penalties are steep if you don’t abide by the rules.

I’ve typically been interested in hands on property management and giving this responsibility to a third party means giving up too much control, even if it results in a financial gain. Then there’s the element of risk that I want to manage too.

Obtaining a mortgage is possible but I am not clear on how it actually works. There are some tax consequences as the mortgage will be in your name, not the 401k’s.

I’d love to hear from someone out there who has used a self-directed 401k to purchase real estate and is willing to talk about it here. Would you do it over?  Why, why not?

Share this post:

By MICHAEL M. GRYNBAUM

Published: August 26, 2008

Home sales have begun to stabilize as sharply reduced prices lured buyers back into the market in July, according to a pair of reports issued this week. And prices, once plummeting at a breakneck pace, fell in June at a more moderate clip.

But prices will have to keep falling, economists said on Tuesday, before the housing market can make a full recovery. Much of the buying last month stemmed from fire sales of foreclosed homes. And prices are expected to keep sagging under the weight of an enormous backlog of unsold homes.For now, “it’s still a buyer’s market, and likely to be so for a while,” said Stuart Hoffman, chief economist of PNC Bank. “Home buyers are holding all the aces.”

A report on Tuesday showed that in the 12 months through June, American home values dropped 15.9 percent, the biggest annual decline on record.

All 20 cities measured in the report, the Case-Shiller index, reported annual declines in June, with seven cities showing price drops of more than 20 percent. A separate 10-city price index, which began in 1988, was off 17 percent, its worst annual reading ever.

But the report offered signs that the pace of price declines is slowing. In June, nine cities recorded an increase in home values from the month before, with prices in Boston, Denver and Minneapolis all up at least 1 percent. That compared with increases in seven cities in May. For all 20 cities, prices fell 0.5 percent in June, after a 0.9 percent decline in May.

In a separate report, the Commerce Department said that more Americans bought newly built homes in July, with sales up 2.4 percent to an annual pace of 515,000 units, less than the 525,000 expected by economists. The positive sales figure came a day after a private agents’ group reported that sales of previously owned homes rose 3.1 percent in July.

The new reports signaled to some analysts that the sharpest corrections in home prices and sales might be over. “The biggest declines, they’re all behind us now,” said Nigel Gault, chief domestic economist at Global Insight, a research firm.

“But,” he added, “that doesn’t mean we’re in any sense ready to move up. Or that we’re ready for sales to accelerate. Or for prices to flatten out.”

While some buyers may be coming back into the market, many obstacles to a recovery remain. Mortgage rates rose this summer as lenders continued to tighten their standards for issuing home loans. Inventories of previously owned homes rose last month, and foreclosures are expected to continue.

“The supply of homes is going to remain very large for quite some time, and that means prices are far from hitting bottom,” Mr. Hoffman said.

Consumer confidence also remains low, which could discourage demand. A survey by the Conference Board, released on Tuesday, showed that confidence was up in August, but still lower than its level in the spring. Among the 5,000 households included in the survey, 3.3 percent of respondents said they planned to buy a home in the next six months, a big increase from the month before.

Still, economists expect that home sales will stay moderately low for an extended period, as buyers wait for prices to fall even further.

“Sales are probably not going to rebound any time soon because the mortgage conditions continue to get tighter,” Mr. Gault said. He said that the excess supply meant that “prices have still got to come down some more.”

Of the 20 cities surveyed in the Case-Shiller index, Las Vegas had the worst annual decline, with values dropping 28.6 percent in the last year. Prices in Miami fell 28.3 percent, and prices in Phoenix dropped 27.9 percent in the same period.

Only previously owned, single-family homes are included in the Case-Shiller survey, which economists consider the most reliable indicator of home values.

Sales of new homes slipped in Midwestern and Southern states, according to the Commerce Department report, but rose in the Northeast and West. The median price of a new home in July was $230,700, down 6.3 percent from a year ago. Sales of new homes remained 35.3 percent below their level in July 2007.

The new-home sales report is considered volatile by economists, and the government said

Share this post:

By STEPHEN LABATON

Published: July 9, 2008

WASHINGTON — Federal policy makers have reached a consensus that the turmoil plaguing the housing and financial markets is likely to spill deep into 2009, becoming one of the most significant domestic problems to confront the next president when he steps into the Oval Office in January.

In a speech on Tuesday, Ben S. Bernanke, the chairman of the Federal Reserve, gave his strongest hint to date of an emerging consensus that problems will persist when he outlined a series of steps the Fed is considering taking in the coming months. One such step would extend into next year low-interest lending programs to Wall Street’s largest investment banks.

The programs, one of which was set to expire in September, can exist only if the Fed issues a finding that there are “unusual and exigent circumstances” that justify them.

Mr. Bernanke also recommended that Congress grant the Fed broader authority to monitor and supervise the financial markets to assure greater stability in the future. But with time running out on this session, lawmakers are unlikely to adopt such legislation before next year.

Treasury Secretary Henry M. Paulson Jr., also speaking Tuesday, said that the Bush administration was working to prevent as many home foreclosures as possible, but that “many of today’s unusually high number of foreclosures are not preventable.” Mr. Paulson said 1.5 million home foreclosures were started in 2007 and that an estimated 2.5 million more will take place this year.

Still, the markets seemed reassured that Washington officials were redoubling their efforts to resuscitate the weak housing sector, despite the downbeat comments. The Dow Jones industrial average closed up 1.4 percent, or 152 points.

Mr. Bernanke said that the Fed would issue next week long-awaited rules to restrict the issuance of new exotic mortgages and high-cost loans for people with weak credit. Such mortgages have been a central cause of the current market problems.

The Federal Housing Administration will also begin an expanded effort next week to help a larger group of troubled homeowners refinance their adjustable mortgages. Under the plan, homeowners are eligible to refinance even if they have missed up to three monthly mortgage payments over the last 12 months. Homeowners who have fallen behind on their payments because of job loss, declining wages and family illness will also be eligible, even if their rates have not increased. Homeowners are now eligible only if they were current on their mortgages before their interest rate was adjusted upward.

For its part, Congress is close to completing legislation on a $300 billion foreclosure-rescue plan that would help troubled borrowers refinance into more affordable loans insured by the federal government. The Senate is expected to approve a measure by next week.

The Fed created the lending programs to Wall Street in March as part of a broader effort to prevent financial institutions from collapsing, as Bear Stearns nearly did before it was sold under heavy pressure from the Fed and the Bush administration to JPMorgan Chase.

The lending programs to the investment banks, a broad expansion of the Fed’s historic practice of providing loans only to commercial banks that the Fed supervises, are intended to provide confidence to financial institutions that they will have enough cash to meet their daily needs. And by permitting investment banks to post collateral for Fed loans, including hard-to-sell financial instruments backed by mortgages, the programs have helped to prop up the enormous and troubled market in securities sold by Fannie Mae and Freddie Mac, the all-important mortgage-finance companies.

The two buyers of mortgages, which together held more than $1.4 trillion of mortgage-backed bonds as of the end of last year, have struggled in recent months through the wave of foreclosures and declining housing markets. On Tuesday, Fannie Mae closed up nearly 12 percent, and Freddie Mac rose 13 percent, after their regulator said he would probably not force them to raise more capital because of an accounting rule change. The shares of both government-chartered companies had tumbled on Monday amid concerns over the accounting rule and worries that the worst of the mortgage crisis was yet to come.

Officials said that the Federal Reserve remained concerned that the declining housing market would not reach its bottom and financial markets would not become more stable before some time next year, and that the economy would continue to suffer as a result of declining consumer confidence, a sluggish global economy and the widespread effects of the rapid jump in oil prices.

“The financial turmoil is ongoing, and our efforts today are concentrated on helping the financial system return to more normal functioning,” Mr. Bernanke said at a forum in Virginia on lending for low- and moderate-income households. He did not provide a forecast of how soon he expected markets would begin to turn.

“Although short-term funding markets remain strained, they have improved somewhat since March,” Mr. Bernanke said, reflecting both the intervention of the Fed in offering loans to Wall Street and “ongoing efforts of financial firms to repair their balance sheets and increase their liquidity.”

Fed officials said they privately reached the view some time ago that weakness in the housing and financial sectors would continue well into next year. But they stressed that this was not meant to signal any change in interest-rate policy.

In a speech last week in London, Mr. Paulson also suggested that the problems plaguing the housing and financial markets might last longer than originally expected.

“Working through the current turmoil will take additional time, as markets and financial institutions continue to reassess risk, and re-price securities across a number of asset classes and sectors,” Mr. Paulson said. The Federal Housing Administration’s expanded program to help more troubled homeowners refinance was announced in April at a time when fewer than 2,000 homeowners at risk of foreclosure had been helped by F.H.A. Secure. Housing Secretary Steven C. Preston said the expanded program would help an additional 100,000 borrowers in crisis by the end of the year. So far, more than 260,000 homeowners have refinanced through the program, the vast majority of them people who have paid their bills on time. Mr. Preston predicted that 500,000 families would be helped by year’s end.

Mr. Preston warned, however, that F.H.A.’s efforts could be derailed if Congress passed housing legislation that failed to safeguard the agency’s financial stability. He said he was concerned about efforts to eliminate the agency’s plans to use risk-based pricing, which would allow F.H.A. for the first time to charge higher insurance premiums to borrowers viewed as presenting a higher credit risk.

He said he was also concerned about efforts by some lawmakers to maintain an agency program in which the seller finances the down payment on a mortgage. The program has suffered high delinquency and foreclosure rates in recent years, and the F.H.A. hopes to eliminate it.If the Senate, as expected, adopts housing legislation by next week, differences still need to be ironed out with the House, which approved a similar measure in May. And though the White House has expressed some willingness to negotiate, the administration has not rescinded a veto threat.

Senator Harry Reid of Nevada, the Democratic majority leader, urged Republican lawmakers to speed up the bill, which has been slowed by a procedural fight despite broad support among lawmakers in both parties. “Since the last stall on the housing bill, 85,000 more Americans have received foreclosure notices — 8,500 a day,” Mr. Reid said. “Tomorrow it will be over 90,000. Every day they squander the Senate’s precious time, the American people lose.”

OTHER NEWS

The Federal Reserve did not discuss placing limits on commission rebates from real estate brokers. This is good news for home buyers and sellers who wish to receive cash back via a real estate rebate from their full service agent who participates a real estate commission rebate program.

Share this post:

By Chuck Jaffe, MarketWatch

June 4, 2008

BOSTON (MarketWatch) — There’s a big, annoying ad campaign for a popular insurance company where the punch line of every commercial is “I saved a bundle on my car insurance.”

If people actually behaved like the actors in the commercials, you might soon hear some of your friends and neighbors saying “I saved a bunch on my real estate commissions.” And after that it could be “I saved a bundle on my financial planning.”

The good news for consumers is that if you like saving a bundle on a lot of services, the time is just about right.

The proof may have come last week, when the Justice Department reached a tentative settlement with the National Association of Realtors that essentially forced traditional real estate brokers to give Internet-based agents access to home-listing information that they had previously been denied.

Online real estate agents often charge discounted commission fees and let buyers review listings at their own pace, but for years those Internet-based brokers in many parts of the country could not access more than 800 Multiple Listing Services nationwide affiliated with the national Realtors group. An MLS is a database of regional properties for sale.

The traditional argument against opening the MLS system to online brokers was that it would result in a significant cut in commissions for traditional real estate agents. Indeed, that’s precisely what government officials wanted.

Open house

In the fall of 2005, government lawyers filed suit against the national Realtors group, saying that the lack of access amounted to discrimination against online brokers. Last week’s settlement, filed in Chicago, opens the listings databases to traditional and online property agents, which should effectively allow brokers to decide exactly how they want to compete in the marketplace.

Last year, the Justice Department and Federal Trade Commission found that home buyers and sellers were missing out on the kinds of cost savings and benefits that consumers in other businesses have reaped as a result of Internet technology. The main stumbling block was perceived to be the access issue.

Whether the settlement — which is likely to take effect in late summer or early fall, 60 days after final approval, and which will be in place for 10 years — actually gets the job done and lowers commissions remains to be seen.

In Delaware, for example, the two listings services — including one that extends into southern New Jersey and eastern Pennsylvania — never barred access to online agents, so long as those brokers were properly licensed.

There is no indication that the increased competition — evidenced by far more subscribers to the MLS services than there are members of the Realtors groups in the area — has affected commissions. Real Trends, an industry newsletter, recently published a survey which showed that the average commission on home sales has changed only marginally since 2005.

Windows of opportunity

The real dichotomy — and consumers frequently can make hay when they see a divide in thinking — came in how consumers feel about using real estate advisers and the Internet. The report issued last year by the FTC and the Justice Department found that more consumers use the Web when house hunting than rely on “For Sale” yard signs, but the Real Trends survey found that most buyers and sellers still prefer to deal with traditional Realtors who know the local market.

That schism is where consumers can potentially make some money. In a real estate market that has significantly slowed in most parts of the country, there’s nothing wrong with demanding the services you need, and paying only for what you use. Rather than lose your business — something a broker might have done a few years back when they were flush with clients — you may find that you can get both traditional and online agents to give you the best of both worlds.

The situation is similar to what has happened in insurance, and what is also happening in financial planning. Years ago many consumers might have considered it too impersonal to do their financial planning more with a computer than a consultant. Today a growing number of financial advisers are changing how they work with the public, taking fewer meetings in favor of more online contact.

One financial adviser told me recently he believes most of his clients would be better served by giving up most face-to-face meetings, leaving him more time to review their portfolios and then send them information electronically. It’s not a revolutionary idea — companies such as Financial Engines are built on that kind of online-service model — but it’s a bit unorthodox for a traditional adviser.

Ultimately, however, that may be the point, determining what’s extreme and deciding if some consumers prefer those far-out methods to the way the business has been done for years. The changes have been in the works for a long time, but the most dramatic changes still lie ahead.

Accordingly, decide what you want when it comes to any stripe of financial adviser — from stockbroker to planner, real estate agent to estate-planning attorney — and don’t be shy about asking for what you want, no matter how far out it may seem.

The world may not be ready for your personal demands yet, but the trend is moving in your direction. You still may not save that proverbial bundle, but at least you’ll get your money’s worth.

Chuck Jaffe is a senior MarketWatch columnist. His work appears in dozens of U.S. newspapers.

Share this post:

May 29, 2008

EDWARD IWATA, USA TODAY
In a win for online discount real estate brokers, the Justice Department and the National Association of Realtors have announced a settlement that will let Internet brokers use the same for-sale home listings used by traditional brick-and-mortar brokers.

The Justice Department says the proposed antitrust settlement will create more competition among traditional and discount brokers, while giving consumers more choices.

“Today’s settlement prevents traditional brokers from deliberately impeding competition,” said Deborah Garza, deputy assistant attorney general in the Justice Department’s antitrust division.

The settlement is encouraging to online real estate firms such as Redfin, a Seattle-based startup that CEO Glenn Kelman calls “the E-Trade of real estate brokers.” Before the settlement, Kelman says he wasn’t even sure that Redfin would continue to exist. Now, though, there’s potential for future growth for his firm and others, he predicts.

“We’re relieved - we’ve been thirsting for this data for a decade,” Kelman says. “If this lawsuit had gone the wrong way, we wouldn’t get the data we need, and that data is our lifeblood.”

The Justice Department filed a civil lawsuit in 2005 against the NAR, alleging that the trade group prevented online brokers from offering lower costs and better services to consumers.

Under NAR policies, online brokers could not gain access to home sale listings offered by the more than 800 NAR-affiliated “multiple listing services” around the country. Some consumers prefer online and discount brokers, who may charge less than the 5 percent or 6 percent commission of traditional brokers.

In one undisclosed market, an online firm was forced to close its popular Web site after all of the traditional brokers followed a questionable NAR policy and withheld their house listings from the site, according to prosecutors.

The NAR does not admit or deny liability in the 10-year-long settlement, which must be approved by a federal judge in Chicago.

The trade group, which represents 1.2 million residential and commercial brokers, called the settlement “a win-win” for its industry and consumers.

“Today I can say with clear knowledge … that the real estate industry is dynamic, entrepreneurial, and fiercely competitive,” said NAR President Richard Gaylord in a statement.

Under the settlement, the NAR and its affiliated multiple listing services must repeal their anti-competitive rules, and not treat online brokers differently than traditional brokers. Traditional brokers cannot withhold their for-sale listings from online brokers.

In the three years since the government sued the NAR, most traditional Realtors also have embraced the Internet for sales and marketing purposes.

“They realize they have to provide it and if they don’t, their competitors will,” says Robert Butters, an attorney at Arnstein & Lehrs in Chicago who has represented online real estate brokers. “All of this will make for a better consumer experience.”

Last year, a report by the Federal Trade Commission and Justice Department found that blocking the online discount brokers’ access to Internet home listings was hurting consumers.

Share this post:

High-income folks like me don’t qualify for rebate checks. But we’re getting so much more.

By Allan Sloan, senior editor at large

(Fortune Magazine) — I won’t be getting an economic-stimulus tax rebate check, but I’m not complaining about it. Not only am I fortunate to make too much money to qualify for a rebate, but I’m getting something far more valuable than the maximum $1,200 my wife and I could have gotten. Thanks to a relatively little-noticed portion of the stimulus package, we’ll be able to refinance our house more cheaply than we otherwise could, or presumably sell it for more.

This means that higher-income couples like us who don’t qualify for rebates because we have adjusted gross income of more than $174,000 ($87,000 for singles) are arguably getting a better stimulus deal than the 130 million taxpayers to whom Uncle Sam is sending payments.

Let me take you through it. The stimulus package raises the maximum size of a “conforming” mortgage to $729,750 from the previous cap of $417,000. A conforming mortgage is a mortgage that can be sold to Fannie Mae or Freddie Mac, and it carries a lower interest rate than “jumbo” loans that exceed those limits. Similarly, the maximum mortgage that can be insured by the Federal Housing Administration has also risen to $729,750. For people in high-home-price areas, including mine, these maximum mortgages are now high enough to matter.

Doing the math

Being able to borrow $417,000 on the cheap doesn’t help much when you’re hoping to sell or refinance your house for, say, $750,000. But a $729,750 limit works out just fine. This higher limit translates into cheaper refinancing or a higher sales price, because the lower interest rate means buyers can presumably afford to pay a higher price.

If we assume a 5% down payment, we’re talking about houses in the $450,000 to $765,000 range becoming eligible for these loans. The range rises if people make larger down payments or put second mortgages on top of these loans.

We’re talking major money here, folks. In today’s market, the interest difference between a conforming loan and a non-conforming loan for a 30-year fixed-rate mortgage is a whopping 1.27% a year, according to Keith Gumbinger, a vice president at HSH Associates, a mortgage research firm. So a $700,000 conforming loan at 6.01% would carry almost $9,000 less annual interest than a nonconforming loan (at 7.28%).

Gumbinger says that’s an artificially high difference caused by the current freeze-up in credit markets. “The spread was about 20 basis points [20-hundredths of a percent] before things got ugly in June,” he says. So even if normalcy returns - alas, that doesn’t seem imminent - having a $700,000 conforming mortgage would cut a borrower’s interest costs by $1,400 a year. Call it $1,000 a year after taxes if you itemize. That’s worth much more than a one-time $1,200 nontaxable rebate payment.

A permanent goody?

Yes, as Washington geeks realize, I’m making a big assumption here - and a somewhat cynical one. The higher limits for Fannie and Freddie (which are government-sponsored enterprises) are scheduled to expire at the end of this year, and there’s talk of reducing the maximum size of the loans insured by the FHA, which is a government agency.

But I’m assuming that when political forces such as homeowners, Fannie, and Freddie get a “temporary” goody from Washington, it tends to become permanent. Politicians love to give out goodies but are loath to take them away. That’s especially true in a case like this, where interest savings (or higher house prices) for high-income types don’t show up as a cost to the federal budget the way rebates do. The cost of this benefit - higher financial risks for the FHA, Fannie, and Freddie - is hidden, unlike the projected $152 billion of stimulus payments.

I’m dubious about whether all this stimulus money will stimulate anything other than the amount Uncle Sam will have to borrow, primarily from foreigners, to close our budget deficit. But I could be wrong. I certainly hope so.

The one thing I liked about the stimulus package was that the government had enough sense to not send money to people like me. But then it turns around and hands me a housing subsidy. I’ll gratefully accept the gift. But that’s no way to run a country.

Share this post:

By Bankaholic.com
April 10, 2008 10:18 AM

The subprime mortgage bust has scared a lot of people away from the housing market. The nightly news is filled with images and stories of everyday Americans who are losing their homes because they made greedy and uninformed decisions, they were taken advantage of by predatory brokers, or a combination of these situations. However, the news isn’t all bad. This decline in the market has dropped prices and made housing affordable to many fiscally responsible renters who never considered home ownership to be an option.

If you find yourself house-hunting, make sure that you follow these five simple steps to take advantage of this downturn in the market; if you don’t, you could be the next sad story on your local news.

1. Accounting for Extraneous Expenses
As with almost any major purchase, there can be a number of fees associated with buying a home. Costs associated with property taxes, homeowner’s insurance, standard maintenance, and utilities should not be overlooked. In addition, if you buy a home that is part of a complex or attached to a homeowner’s association, you will have to pay annual fees as well. Make sure that you take these additional expenses into account when you are determining how much home you can afford.

2. Acknowledging Special Assessments
Many homes require a number of regularly scheduled special assessments to be performed in order to satisfy local regulations and ordinances. These are fees that are required in addition to standard property taxes. In order to make sure that these costs don’t take you by surprise, obtain copies of prior bills for these services and inquire about any pending and future assessments that need to be done on the property.

3. Finding a Manageable Mortgage
A good question to ask yourself before contacting your local banker to discuss a loan is, ‘how much is too much?’ While you might be tempted to try and get as much money as possible if you can find a good rate, you do not want to make the mistake of taking on a loan so big that your finances will be stretched to the point that you cannot make your payments. Traditional income multipliers are a good place to start. If you have a single income, 3.5 times your annual salary is the maximum that you should consider requesting and if you have dual incomes, the maximum should be about 2.75 times your joint salary. If these amounts will stretch your budget too far, then it is a good idea to consider borrowing less.

4. Determining How Much Home to Buy
Now that you have a handle on all of the costs involved and have determined how much money you can borrow, it is time to figure out just what you can afford to spend on a new home. Whatever you do, don’t bite off more than you can chew; doing so could quickly lead down the road to foreclosure. Take into account your credit history, the closing costs on the loan, the amount of the down payment, and any preexisting debts. Weigh these against your income and savings before making a move.

5. Welcoming Your New Home into Your Basic Budget
Once you have everything in order, set a budget and stick to it. While your new home purchase will undoubtedly become both your biggest asset and your biggest expense, you still have to eat. It is also important to make sure that you start building a rainy day fund in case of emergencies; one of the things that accompany a new home is the potential for substantial unforeseen expenses. Set a reasonable budget that includes an allowance for unexpected costs and you can live happily ever after in your new home rebate.

Share this post:

What home buyers need to know about real estate agents

As a real estate investor it is critical that you maximize your returns. With this in mind, it becomes even more critical that you either get your real estate license so you can receive the commission or team up with an agent that will give you a real estate rebate. Many investors think that by finding a property on their own they can negotiate a better deal by enabling the listing agent to keep the entire commission. This is false. Think about it, if you have the opportunity to create a bigger pay day for yourself and no one to keep you honest, what would you do? Listing agents work for the seller first and “themselves” second. By teaming up with a rebate agent, you get a professional negotiator that has brokered hundreds of deals and a up to 25% commission rebate. This is a no brainer. Even the department of justice endorses real estate rebates and feels that they significantly help consumers save more on their real estate transactions.

Share this post:

By The Associated Press - 04/02/08

The Montana Board of Realty Regulation has voted to repeal a rule that bars real estate brokers from offering real estate rebates and other incentives to their customers, the U.S. Department of Justice announced Tuesday.

The decision was made in response to an investigation by the department’s Antitrust Division, the agency said in a news release. Calls to the board’s Helena office Tuesday evening were not answered.

According to the Justice Department, the board voted to delete language from the Administrative Rules of Montana that said holders of real estate licenses may not ‘‘solicit business by offering gifts, rebates or promotional items.’’

The change will benefit consumers seeking real estate services in Montana by eliminating a key impediment to competition between real estate brokers, the agency said.

The amended rule approved Tuesday also clarifies that the payment of a rebate to a buyer or seller in a real estate transaction is not an unauthorized payment of a commission to an unlicensed person, the release said.

‘‘Amending this rule to allow rebates in real estate transactions is a good change for Montana consumers,’’ said Thomas O. Barnett, assistant attorney general in charge of the department’s Antitrust Division. ‘‘As we have consistently seen in other states, the repeal of rebate bans lead to increased competition between brokers and lower prices for consumers of real estate brokerage services.’’

The Justice Department says it began its investigation after the Montana Board of Realty Regulation voted in August to prohibit licensees from offering gifts, rebates or promotional items.

In most states, brokers can offer to rebate a portion of their commission to consumers, or offer other non-cash incentives, to get clients seeking to buy or sell homes, the release said. Montana’s rule banned this form of competition between real estate brokers.

West Virginia, South Dakota and Kentucky also have recently repealed anti-rebate regulations in response to concerns raised by the Justice Department, the release said.

Share this post:

By EDMUND L. ANDREWS

Published: March 18, 2008

WASHINGTON — The Federal Reserve reduced its benchmark interest rate by three-quarters of a percentage point on Tuesday, to 2.25 percent, a cut that was less than investors had been hoping for even though it was one of the deepest in Fed history.

While leaving the door open for additional rate cuts, policy makers also expressed growing concern about inflation. “Uncertainty about the inflation outlook has increased,” the central bank said. “It will be necessary to continue to monitor inflation developments carefully.”

The statement highlighted the growing dilemma that the Fed faces, between fighting an economic downturn and heading off new inflationary pressures that have become apparent in everything from energy and food prices to the falling value of the dollar.

The Fed’s announcement was the culmination of an extraordinary series of actions over the last two weeks to prop up financial markets and the economy with a flood of cheaper money.

The Federal Reserve has reduced its overnight lending rate, the federal funds rate, six times since September, and did so twice in January alone.

With the latest reduction, the federal funds rate is far below the rate of inflation, meaning that the “real,” or inflation-adjusted rate, is below zero. It is also well below the European Central Bank’s benchmark interest rate of 4 percent or the Bank of England’s rate of 5.25 percent.

Investors had already assumed that the central bank would reduce the cost of borrowing by at least another three-quarters of a percent on Tuesday, but mounting worries about a meltdown in financial markets and the Fed’s emergence as lender of last resort had elevated expectations even higher.

Indeed, expectations about another deep cut in interest rates were so high that the central bank was at risk of setting off a new wave of panicky selling if it had announced a reduction of less than three-quarters of a percentage point.

A lower federal funds usually leads to lower interest rates for mortgages, consumer loans and commercial borrowing.

But Fed officials had been startled and frustrated that their previous rate reductions were doing nothing to lower the long-term interest rates that are most relevant for expanding a business or buying homes or cars.

Part of the reason, analysts said, is that lower overnight interest rates have only limited relevance to the fundamental problem that is roiling the credit markets and the economy: the huge losses caused by the collapse of the housing bubble and the home loan environment that fed it.

Most analysts predict that housing prices, which have already fallen in most parts of the country, will drop much further before they hit bottom.

About eight million homeowners already owe more on their mortgage than their houses are currently worth, and foreclosure rates have soared over the last year.

The Fed’s problem is that its primary tools for stimulating growth — reductions in the cost of borrowing — do little to address the fears about bad loans. Many if not most private forecasters have concluded that the United States has probably entered a recession. The Labor Department has reported back-to-back declines in payroll employment in January and February.

And while the unemployment rate is still low at 4.8 percent, the number of private-sector jobs has declined for three months in a row — a pattern that has almost always been accompanied by a recession in recent decades.

With financial markets becoming dysfunctional, Fed officials have announced a series of steadily bigger lending programs for banks and cash-strapped Wall Street investment firms.

On Sunday, Fed officials agreed to lend up to $30 billion to JPMorgan Chase to engineer its takeover of Bear Stearns, a major Wall Street firm that was near collapse.

But Fed officials face increasingly contradictory pressures: inflation is rising even though growth has stalled.

The federal funds rate is once again edging close to zero, at which point the central bank would have to resort to entirely new strategies if it wanted to keep opening its monetary spigots.

But a growing number of economists, including some Fed officials, contend that the housing bubble and bust stemmed at least in part from the central bank’s own decision to keep interest rates at rock-bottom lows from 2001 to the middle of 2004.

Meanwhile, consumer prices, even after excluding the volatile prices of food and energy, are climbing faster than the central bank’s unofficial target of less than 2 percent a year. On Tuesday, the Labor Department said the core measure of the producer price index, which excludes volatile energy and food products, jumped 0.5 percent in February, the biggest gain since November 2006.

The value of the dollar has plunged against most major currencies, a trend that pushes up the prices of imported goods and has contributed to the surging price of oil.

Share this post: