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SMALL TOWN AMERICA REALITY

Here is a story from my local paper today. They interview a local banker, real estate agent and investment advisor. I live a couple miles from Harleysville, in Montgomery County PA. We have not been hit by this economic downturn nearly as badly as the rest of the country, so the data these people provide is worrisome. Here are the key things I took from the article:

  •  Harleysville Savings Bank is a tiny small town bank that did nothing wrong during the financial meltdown caused by the mega criminal Wall Street banks. Their FDIC fees for the 2nd quarter of 2008 were $56,000. In 2009, the FDIC charged them $1, 080,000. In 2009, the FDIC fees were $400,000. This small town bank is paying for the sins of criminal mega banks. This is free market capitalism? The key point from the CEO was the sentence below. WE THE PEOPLE paid for the misdeeds of the criminal banks. Are you pissed yet?:
“The increased cost of doing business came at us,” he said. “We passed it along, unfortunately, to the consumer.”
  • Home sales in the Phila area are at a 10 year low, even with tax credits and mortgage rates below 5%. Home sales have collapsed by 50% in the last two months. The realtor actually believes there will be a V recovery. Delusion dies slowly.
  • The investor dude is your standard issue moron. He believes stocks for the long run is just dandy. He believes the economy will continue to grow. He believes this unemployment thing is just a bump in the road. People need to believe whatever allows them to sleep well at night.

 

Economic recovery still a work in progress

Published: Tuesday, August 24, 2010

By TONY Di DOMIZIO

GEOFF PATTON/THE REPORTER Customers Kathleen Harry and Tony Rocco talk to teller Alycia Baker at the Harleysville Savings Bank branch in Lansdale on Monday.

HARLEYSVILLE – Economic recovery across the board is slow and those in real estate, the banking industry and investments agree we have to wait it out to see if things get better.

But Harleysville Savings Bank CEO and President Paul Geib said the bank’s third-quarter release for June was strong.

“We are growing with our deposits and loans are up,” he said.

In the second quarter of 2009, Harleysville Savings Financial — the parent company of Harleysville Savings Bank — posted about $856,000. A year later, it showed a profit of nearly 54 percent at $1.3 million.

Banks were hit with a special assessment imposed by the Federal Deposit Insurance Corp. last year, which affected earnings.

Geib said the FDIC charge in second-quarter 2009 cost the bank more than $400,000. In 2008, FDIC insurance premiums were around $56,000 and more than $1,080,000 last year.

“The increased cost of doing business came at us,” he said. “We passed it along, unfortunately, to the consumer.”

Yet last year was a record year for income, Geib said.

Banking on it…

While Harleysville Savings Bank is not seeing new business loans, it is seeing business transfer existing loans from other banks or refinance an existing loan.

“It’s quiet. It’s not what it should be,” he said. “For us, new business means taking relationships from other organizations. From an economic standpoint, we do not find companies expanding to create new jobs or expanding their business. An existing business is refinancing with us, and for us, that’s a new loan.”

In an industry that saw 140 banks fail in 2009 and 110 fail in 2010 thus far, Geib said Harleysville Savings Bank — which has no connection with the defunct Harleysville National Bank — has been able to avoid the areas that impacted other banks.

In fact, a new branch is set to open in Franconia on County Line Road at Route 113.

“We are a community bank and our lending stays at home,” Geib said. “Our footprint is to small businesses and the consumer.”

He said some banks located in the state didn’t have the activity and had to go into other parts of the country for business. That’s what got them in trouble, he said.

“When people hear about the economy, they lose the context of a national recession, but it’s a local regional story. Pennsylvania is not as bad as the rest of the country, but Montgomery County is even better than Pennsylvania.”

The local economy is soft, he said.

“There’s a term ‘flat is the new up.’ If you are stable, you are doing pretty well,” Geib said.

Geib said the recovery won’t be a quick one. With recent unemployment indicators and stock activity, it will take time to work through it.

“Everybody knew we wouldn’t recover as quickly as the economy fell,” he said. “The fact that interest rates continue to come down show markets believe we are not through this yet.”

On the home front…

In the real estate industry, the summer market is always the slowest time of year, according to Re/Max Realtor Carol Zellers.

However, business remains down significantly. Across the five-county area (Philadelphia, Montgomery, Bucks, Chester and Delaware), sales between May and July were at a 10-year low.

“People didn’t stop buying when the tax credit ended, but sales decreased by about 50 percent from the end of April to the end of May in the county for single-family homes,” Zellers said. “It’s always slow, but it’s extraordinarily slow now.”

According to Freddie Mac, interest rates haven’t been lower than they are now since before 1971.

“Inventory is high,” Zellers said, “and prices have come down. We are approaching the low level of the ‘V.’ We will not know when the market bottoms out until after it has passed.”

She said those buying at the bottom of the valley or up from the valley are fine, but those waiting for the bottom are missing the boat.

“Values continue to decline,” she said. “Interest rates are rising in the first quarter next year.”

There is an extreme oversupply in the market, but demand has slowed. That puts the economy out of kilter.

“Because demand is low, it is driving down prices,” Zellers said. “There needs to be a point in the future equilibrium where supply does equal demand, but it’s a long way off.”

Between June and August 2006, the 30-year fixed-rate loan was at 6.5 percent. Now, it is at 4.5 percent for a $200,000 mortgage. Savings equal out to about $250 a month or $3,000 a year.

“You can get the same $200,000 mortgage now for $250 less per month than you could four years ago,” Zellers said. “It’s a fabulous time to buy.”

In Zellers’ opinion, the housing market has not bounced back to where it was, and it can’t because of the financial services industry.

She said mortgage processing has become a tedious experience. Banks are tightening up requirements for mortgages because it’s now a big risk to take when they lend money.

“It’s the golden rule: he who has gold makes the rules,” she said.

And for investors…

Paul Biedlingmaier, a financial adviser with Edward Jones Investment in Lansdale, has some advice for the individual investor right now: buy good quality companies, diversify in different classes and ladder a fixed income portfolio.

He said in late 2007 to 2008, the economy had six quarters of negative growth. The federal government stepped in to control interest rates. It offered a stimulus package and gave TARP money to banks.

Then the economy turned around in late 2009 and there were three consecutive quarters of growth. That is expected to continue in 2011.

“The economy is recovering, but it’s a little bit slower,” he said. “But we have low inflation, low interest rates, corporate profits are growing, balance sheets are stronger and there’s the possibility of increasing dividends.”

The big problem is unemployment. It is lagging because of the economic spending package, he said. Corporations are not spending and not hiring because of uncertainty in years down the road.

“U.S. wages are growing, but tell that to people who are unemployed,” Biedlingmaier said.

Aside from unemployment, the Gross Domestic Product has risen since the end of the recession. Biedlingmaier predicts the next three quarters next year will grow by 2.5 percent.

“Until the market heads in a positive direction, there will be bumps in road like unemployment. It will work out, so people have to stay course,” he said. “It will turnaround, but it will be slower this go-around than last time.”