Jun212013
How the federal reserve’s printing money impacts housing
The federal reserve sets policy in meetings of the Federal Open Market Committee (FOMC), a group of bankers. The FOMC sets target interest rates and directs its traders to either buy or sell securities to meet interest rate targets.When the federal reserve buys Treasuries, the price goes up, and interest rates go down. When the federal reserve sells Treasuries, the price goes down, and interest rates go up.
Prior to the financial meltdown in 2008, the federal reserve only bought short-term Treasuries, but in an effort to rescue housing, they began an unprecedented campaign of buying 10-year Treasuries and mortgage-backed securities in order to drive down mortgage interest rates.
It’s important to remember that the federal reserve had never done anything like this before. However, with the member banks of the federal reserve exposed to a $1 trillion in unsecured mortgage debt, stimulating housing to make prices go up was considered essential to save the banking system — or at very least preserve the jobs and bonuses of powerful banking executives.
FOMC Votes No Change in Stimulus
By: Mark Lieberman, Five Star Institute Economist — 06/19/2013
With a somewhat upbeat assessment of the economy, the Federal Open Market Committee (FOMC) said Wednesday it would continue its policy of near-zero interest rates and its $85-billion-per-month bond-buying program. …
At a press conference following the release of the statement, Federal Reserve Board Chairman Ben S. Bernanke said the central bank intended to reduce its monetary stimulus later this year — and end the bond purchases entirely by the middle of next year — if unemployment continued to decline at the pace that the Fed expected. …
So they will gradually slow down this year and stop next year, IF unemployment meets their expectations. And if it doesn’t, they will keep printing money.
Printing Money
When the federal reserve buys a Treasury note or an asset-backed security, unlike an ordinary bank or citizen, it doesn’t have the money stored in some account it uses to buy. When the federal reserve buys, it merely prints money. That money didn’t exist prior to the federal reserve’s purchase.
There are limits to how much money the federal reserve can print. Ultimately, the total amount of money in circulation represents the total value of goods and services in the economy. If the federal reserve prints too much — and there is always pressure to print free money — the excess causes price inflation.
During the housing bubble, lenders created a large amount of mortgage debt. Ostensibly, this was backed by the “value” they were creating in housing. Unfortunately, since this value was not real, the mortgage debt bloated the money supply and created a false economic boom.
Monetary Deflation from the Housing Bubble
The collapse of the housing bubble caused a great deal of mortgage debt to vanish. When banks make loans that don’t get repaid, and they cannot recover the loan amount through foreclosure and resale of the asset, deflation results. In effect, the losses unprint money. The main reason we haven’t seen inflation from the federal reserves endless quantitative easing (fancy term for printing money) is that the new money being printed is merely offsetting money being destroyed by bank write downs from consumer deleveraging. (Also, some inflation is being exported to countries with a currency pegged to the dollar.)
Yields on long-term debt
The federal reserve is buying 10-year Treasuries and mortgage-backed securities specifically to lower mortgage interest rates and reflate the housing bubble. Private investors have also been purchasing these securities because despite their low yields, they provide better returns than competing investments. However, investing in longer-term debt while interest rates are at record lows has been characterized as “picking up nickels in front of steamrollers” because the resale value of these instruments will plummet when interest rates begin to rise. What investors make in yield today they will surrender ten-fold when values drop in the future.
Investors aren’t stupid. Most know this, so these investors have their finger on the eject button, and the herd is easily spooked. The slightest hint of a move higher in rates causes investor panic, wild selloffs, and short-term spikes in interest rates. The recent spike in mortgage rates was caused by the rumor that the federal reserve might taper off its purchases of mortgage-backed securities. Merely the rumor, not any announcement of a change in policy, caused the interest rate spike.
After a few weeks of sitting in cash, these investors start looking for investments that provide yield. When none are available, they pile back into longer-duration debt, prices rise, and interest rates fall again. This skittish flow of money in and out of the bond market creates much volatility in rates, and at some point, investors will find better competing investments, and the money will not flow back into these bonds. When that happens, rates will begin to steadily rise.
Why do we know mortgage interest rates will rise?
Interest rates are at record lows, it’s difficult to imagine they will go anywhere but up. Simple reversion to the mean suggests that much. However, the case for rising rates is anchored in something much more tangible. An astute reader posed the question in the comments recently, “Since the fed has been buying the overwhelming majority of Treasuries and mortgage-backed securities, when they taper off their purchases, won’t there be some effect of the loss of a major buyer of these assets?”
Take away the major buyer of any asset, and prices will likely fall, perhaps a great deal. Remember, falling bond prices mean rising interest rates. Unless some major sovereign power or central bank steps in to take up the slack, prices will fall and interest rates will rise.
Icarus and endless quantitative easing
Rising interest rates will hurt the banks by making it more difficult to reflate the housing bubble. It will make life difficult for our government issuing all this debt the federal reserve is buying. Rising interest rates will make the debt-service payments on the US debt onerous. Further, rising interest rates will cool an already weak economy and might tip us back into recession. So why not print money indefinitely?
Printing money is dangerous. The only reason the federal reserve gets away with it now is because investors don’t believe their printing is causing inflation. Realistically, as long as we are still deleveraging and writing down copious amounts of mortgage debt, that is probably true. Investors will satisfy themselves with 2% yields on 10-year Treasuries as long as they believe the currency is losing value at less than 2% per year from printing money. In fact, with monetary deflation caused by debt deleveraging, many investors perceive that real interest rates (those adjusted for inflation) are still quite high. In short, as long as we have deflation, low yielding treasuries are a good investment.
Once consumer deleveraging stops and money is no longer being destroyed, further quantitative easing will be inflationary, and if investors believe inflation will exceed the yield they are getting on long-term debt, they won’t buy it. The lack of buyers causes bond prices to drop and interest rates to rise.
Icarus is a character from Greek mythology. He wanted to escape the island of Crete, so his father fashioned him wings made of wax and feathers and instructed him not to fly too close to the sun or the wax would melt and he would crash. Icarus did not heed his father’s warning, and when he flew too high, the wax melted, the feathers fell off, and he crashed back down to earth.
Quantitative easing is much like the flight of Icarus. When the economy got really bad, it was arguably the only way out of our predicament. If they print just the right amount, we can fly to safety. However, if they print too much, if they fly too close to the sun, the melting rays of inflation will cause investors to stop buying bonds, the federal reserve would lose control of long-term rates, and we could have a complete meltdown of the mortgage and housing markets.
This more than theoretical imagining. This is a very real danger.
If the federal reserve prints too much money, inflation expectation will cause investors to abandon the bond market, bond prices would crash, interest rates would spike, nobody could afford today’s house prices at 10% interest rates, and the resulting housing market crash would rival 2008.
I’m not the first to point out this problem. I covered Peter Schiff’s argument in Will the deflating bond bubble cause housing to crash again?.
Perhaps the federal reserve will get it just right. Perhaps they will print money until deflation stops and then an improving economy will make continued printing unnecessary. People will go back to work, earn money, buy homes, and everyone will live happily ever after… or not.
What passes for investment property in Irvine
Real estate investing for cashflow in Orange County generally doesn’t work because the prices are far too high relative to rents. However, Orange County investors found a way to make poor cashflow properties into good ones: HELOC abuse.
The former owner of today’s featured property extracted $165,000 from the property by monetizing the appreciation. Of course, the increased debt made the monthly rental cashflow go negative, and he lost the property in foreclosure, but for those who embrace the Ponzi finance lifestyle, this was a productive asset.
[raw_html_snippet id=”newsletter”]
[idx-listing mlsnumber=”PW13112378″ showpricehistory=”true”]
106 STANFORD Ct #53 Irvine, CA 92612
$529,900 …….. Asking Price
$228,000 ………. Purchase Price
6/28/2000 ………. Purchase Date
$301,900 ………. Gross Gain (Loss)
($42,392) ………… Commissions and Costs at 8%
============================================
$259,508 ………. Net Gain (Loss)
============================================
132.4% ………. Gross Percent Change
113.8% ………. Net Percent Change
6.5% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$529,900 …….. Asking Price
$105,980 ………… 20% Down Conventional
4.02% …………. Mortgage Interest Rate
30 ……………… Number of Years
$423,920 …….. Mortgage
$108,015 ………. Income Requirement
$2,029 ………… Monthly Mortgage Payment
$459 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$110 ………… Homeowners Insurance at 0.25%
$0 ………… Private Mortgage Insurance
$192 ………… Homeowners Association Fees
============================================
$2,790 ………. Monthly Cash Outlays
($331) ………. Tax Savings
($609) ………. Principal Amortization
$148 ………….. Opportunity Cost of Down Payment
$86 ………….. Maintenance and Replacement Reserves
============================================
$2,085 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$6,799 ………… Furnishing and Move-In Costs at 1% + $1,500
$6,799 ………… Closing Costs at 1% + $1,500
$4,239 ………… Interest Points at 1%
$105,980 ………… Down Payment
============================================
$123,817 ………. Total Cash Costs
$31,900 ………. Emergency Cash Reserves
============================================
$155,717 ………. Total Savings Needed
[raw_html_snippet id=”property”]
Investors can’t find a better place to park their money, so they are buying mortgage-backed securities again.
Mortgage Rates Pull Back After Six Consecutive Increases
Mortgage rates eased off a bit this week as the markets awaited word from the Federal Reserve on potential changes to its monetary policy.
The 30-year fixed-rate mortgage (FRM) averaged 3.93 percent (0.8 point) for the week ending June 20, according to Freddie Mac’s Primary Mortgage Market Survey—down from 3.98 percent the week before. Last year at this time, the 30-year FRM averaged 3.66 percent.
The 15-year FRM averaged 3.04 percent (0.7 point), down from 3.10 percent the prior week.
Adjustable rates showed similar trends. The 5-year Treasury-index hybrid adjustable-rate mortgage (ARM) averaged 2.79 percent this week (0.5 point), flat from last week. The 1-year ARM averaged 2.57 percent (0.4 point), down a single basis point.
“Mortgage rates were relatively unchanged this week as market participants awaited the Federal Reserve’s (Fed) monetary policy announcement,” explained Frank Nothaft, VP and chief economist at Freddie Mac.
Citing recent developments in economic growth (despite a still-high unemployment rate), the Fed announced it will continue its bond-buying program at the current pace.
Bankrate.com also observed a retreat in interest rates in its weekly national survey. The 30-year FRM slipped to 4.12 percent this week, while the 15-year fixed dropped to 3.30 percent.
Adjustable rates actually increased slightly in Bankrate’s survey, with the 5/1 ARM rising to an even 3.00 percent.
“Mortgage rates broke a 6-week streak of increases, with mortgage rates dipping slightly ahead of the much anticipated Federal Open Market Committee meeting,” Bankrate said in a release. “But the pullback may prove to be short-lived, given a sharp increase in long-term bond yields following some of Fed Chairman Ben Bernanke’s comments.”
Take a look at this. I didn’t know it was still so bad. How many years does it take the major banks to get their act together.
RPT-INSIGHT-Losses loom for investors enmeshed in U.S. mortgage chaos
Fri Jun 21, 2013 6:59am EDT By Michelle Conlin
(Reuters) – Since the financial crash, banks have been accused of wrongfully foreclosing on homeowners because they failed to create and maintain proper mortgage paperwork. Now, there are signs that chaotic document management is harming investors in mortgage bonds, too.
A review of loan documents, property records and the monthly reports made available to investors show that mortgage servicers are reporting individual houses are still in foreclosure long after they have been sold to new buyers or the underlying mortgages have been paid off.
These delays enable banks and other mortgage servicers to continue to charge monthly fees to investors in these mortgage-backed securities, the banks’ investor reports show. It means that investors are buying mortgage bonds that may have billions of dollars of undisclosed losses that will become apparent only at a later stage. It could also lead to a new round of litigation for banks just when some appeared to have been putting their mortgage problems behind them.
The review, conducted by foreclosure investigator Lisa Epstein, found hundreds of instances across the United States where information about the status of individual home loans was incorrect. The information about the mortgages is sent from the mortgage servicer, which handles tasks such as collecting monthly mortgage payments and handling foreclosures, to the trustee of the mortgage bonds, which administers monthly reports and makes sure investors get paid.
In 2009, Epstein helped uncover the robo signing scandal, in which she discovered that banks had hired low-level workers to pose as executives, signing hundreds of legal affidavits a day without verifying a single word, as is required by law. The reporting lag issues she identified in mortgage bonds involved many of the same mortgage servicers who engaged in robo signing.
Au contraire….. it’s a sea of RED in MBS-land, right now.
http://www.mortgagenewsdaily.com/mbs/
International House Hunters Maintain Activity in U.S. Market
While the level of search activity from international house hunters changed little year-over-year, Trulia found trends are changing among foreigners who shop for homes in the U.S.
Among the home searches conducted on Trulia from April 2012 to March 2013, search activity from internationals accounted for 4.3 percent of all searches, down slightly from 4.4 percent a year ago.
Out of the metros eyed by foreigners, Miami was the most searched, representing 14 percent of home searches originating outside of the country. Among the top 10 markets favored by foreigners, six were in Florida. However, all six Florida metros saw year-over-year search activity fall.
While interest seems to be waning for Florida markets, two out of the top 10 most-searched markets saw activity from foreigners increase-Los Angeles and San Francisco.
Los Angeles ranked as the second most searched metro, with 13 percent of foreign searches focused on the area, up by 4 percent a year ago, while San Francisco saw activity from foreigners increase to 9 percent, placing it as the seventh most searched city.
A closer look at search activity revealed interest from internationals was more about specific neighborhoods than metros.
“Foreigners are drawn to the rich-and-famous neighborhoods,” said Jed Kolko, Trulia’s chief economist. “In some of the priciest neighborhoods in New York, Los Angeles, and Miami, more than one quarter of home searches come from other countries. But most Americans live in neighborhoods that lack worldwide name recognition. In most neighborhoods, foreigners account for less than 3 percent of home searches.”
For example, in Bel Air, 41 percent of searches are from internationals, compared to 13 percent for all of Los Angeles.
Two other neighborhoods in Los Angeles—Beverly Hills and West Hollywood—held a high share of international searches, at 38 percent and 34 percent, respectively.
The greatest share of foreign search activity originated out of Canada, which represented 19 percent of activity. Though, the year-over-year change in search share for Canada fell by 22 percent, Trulia reported.
Search activity out of the United Kingdom edged up to 9 percent, and for Germany, search share stood at 5 percent, down by 9 percent from the year before.
Meanwhile, Trulia noted, “home searches are on the rise from lower- and middle-income countries with strong economic growth and stronger spending power.”
India, which accounted for 4 percent of foreign searches, increased its activity by 24 percent, and activity from Nigeria was up by 37 percent and now accounts for 3 percent of foreign searches.
Russia, the Philippines, and China all increased search activity by at least 17 percent.
20% Delinquent Mortgage Squatters Vacate Homes Before Foreclosure
As the foreclosure process drags on in certain states, sometimes the homeowner will beat the lender and leave before a foreclosure sale date is set.
According to RealtyTrac’s estimate, 167,680 properties in foreclosure have been abandoned by their owner. The total represents 20 percent of all foreclosures.
Adding to this total are the more than 540,000 banked-owned properties still waiting to be sold to a third party.
“Somewhat ironically, efforts to slow the slide of the housing market in previous years are now hampering a smooth recovery by holding back inventory of homes that almost certainly must sell in the future but are not yet listed for sale,” explained Daren Blomquist, VP atRealtyTrac.
With 55,503 vacant foreclosures, Florida alone accounted for 33 percent of the national total.
Next in line was Illinois, which holds 17,672 abandoned foreclosures. California, Ohio, and New York each held around 9,000 vacant foreclosures.
Indiana surpassed other states with the highest share of foreclosures that are sitting empty, at 32 percent. In Oregon and Nevada, 28 percent of foreclosures are owner-vacated. Washington, Georgia, and Michigan followed closely behind, where the share for owner-vacated foreclosures was 27 percent for each state.
“Efforts to prevent unnecessary foreclosures and mitigate their impact on home values have resulted in a foreclosure process that takes an average of 477 days nationwide, and more than two years in some states – which is holding many of these must-sell properties off the market,” Blomquist said.
Among metro areas, Chicago led with 14,717 owner-vacated foreclosures, followed by Miami (13,901), New York (10,074), Tampa (9,998), and Orlando (5,569).
In this current low-inventory environment, the release of these vacant foreclosures should not cause prices to plummet, according to RealtyTrac.
“Even if all these homes flooded the market simultaneously they would likely not cause the once-feared double dip in prices given supply constraints from non-distressed sellers and stronger demand,” Blomquist said. “Given these market dynamics, it’s not surprising to see that Florida, Illinois and New Jersey – states with three of the four longest foreclosure timelines – have all had laws take effect in the last six months that speed up the foreclosure process on vacant properties. These laws should help provide some extra supply and possibly help reduce the threat of another housing price bubble forming in these markets.”
“Somewhat IRONICALLY, efforts to slow the slide of the housing market in previous years are now hampering a smooth recovery by holding back inventory of homes that almost certainly must sell in the future but are not yet listed for sale,” explained Daren Blomquist, VP atRealtyTrac.
I don’t see the irony in reality playing out essentially the way it was intended. Irony is when the opposite of what was intended to happen, happens. State legislatures intended to manipulate housing prices upward by restricting distressed inventory, thereby benefiting homeowners. Guess what happened? It worked. Prices stabilized at levels above their natural bottom. Now the prices are rising from the artificial bottom to new artificial highs. No irony.
Irony would be if they had intended to manipulate the housing prices higher and the housing prices went dramatically lower. Then, seeing the folly of their ways, they ended the foreclosure prevention programs, and prices skyrocketed. Now THAT would be ironical.
I guess since California is just now starting to manipulate foreclosures with the Homeowner’s Bill of Rights, we can expect to have less than zero inventory in about 3 years. Oh the irony.
Perhaps I am being too critical since the author did use the word “somewhat.” So the author is only “somewhat” stupid. I don’t know if anyone who thought that the problem with the real estate market was too many foreclosures. The problem was too many people not paying their mortgages, which naturally results in the keys making their way back to the true owner (bank).
Foreclosures are merely the most obvious symptom of the underlying disease. Treating a disease is not the same as curing it. And sometimes enduring the side effects of the treatment are far worse than letting the disease run its course. Except of course for big Pharma that needs to fund more R&D to show incremental improvements over placebo without knowing why, due to their complete ignorance of the underlying disease causation. But why spend money researching disease causes — you can’t patent natural processes, and what if, oh horror, some already existing natural substance that doesn’t need to synthesized (and patented) effectively cures the disease? Who would want to spend money to put themselves out of business? What if big Pharma had intended to treat a disease for the next 20 years under patent protection and instead cured it! Now, THAT would be ironical.
But I digress. If the financial system had collapsed, we would have learned something. As it stands, we haven’t learned anything at all — not even the proper use of the word irony.
Most MSM interest rate articles are claiming a “Gradual” increase in mortgage rates would affect the housing recovery, but how about a QUICK SIGNIFICANT increase? We’ve gone from 3.5% 30 year rates to 4.25+% in less than a month.
If you were stretching to qualify at 3.5%…you’re probably on the outside looking in at 4.25%. Or you max house price just dropped big time!
I’m keeping my eye on cancellations. I don’t think we are at the point where we will see a lot of them, but if mortgage rates go up another .25% by end of next week we might start seeing a few. That’s about 11% decrease in purchasing power.
I don’t know. Fortune assures me that rising rates will not affect housing prices:
http://finance.fortune.cnn.com/2013/06/20/interest-rates-housing-2/
Wow, I just saw 3 listing in my complex go pending in the last 7 days. All about 10% higher then the closing price in April. The only listing that didn’t go pending is one that was listed 25% higher than the previous close.
I can’t even use terms like “WTF price” or “reasonable price” right now, because there are no such things in our neighborhood. A comp to ours went pending last week within 10 days of listing asking $356 per sq ft. Our listing hits Monday at $355 per sq ft. Hopefully we receive many quick qualified above-asking offers!
My guess is that is a sign that the last of the stupid money just bought.
Worst 2-Day Move For Mortgage Rates in 4 Years
Mortgage rates are reprising past trauma, now matching the scope of the late 2010 sell-off, with the past two days matching the scope of Black Wednesday’s sell-off. “Selling” in this case, refers to the Mortgage-Backed-Securities (MBS) that most directly affect rates. As MBS prices fall, rates rise. The faster this happens, the worse it is for rate sheets, and despite the month and a half of selling, the past two days have been surprisingly abrupt for lenders. Rate sheets have taken the most profound hits we’ve seen on back to back days (past examples were more concentrated on one of the two days). Conventional 30yr Fixed best-execution is quickly up to a staggering 4.375%-4.5%, though we’d note that there’s even more variation between lenders as volatility magnifies the effects of different pricing strategies.
Today’s economic data had precious little effect on trading levels, adding to the sense that it’s going to take official employment data on July 5th, a change in tone from the Fed, or an unexpected tape-bomb style headline to convince markets that the Fed won’t begin curtailing asset purchases in September. While that continues to be the case, interest rate movements continue to be a risk. We’d like to say “we’ve moved high enough, fast enough that we’ll probably be able to dig in and hold some ground here,” but that’s not safe yet. Market participants themselves, let alone mortgage lenders, are still feeling out the post-Fed-Announcement environment. There’s no reason rates can’t go even higher just because they’ve moved so high, so fast.
I top your story with this:
Treasuries’ Worst Week In 50 Years <-Ouch!
5Y yields rose a stunning 37% this week – the most in the 50 year record of Bloomberg data. The 38bps increase in yields is also among the worst absolute shifts over that period but off such low levels it is quite a shock. Credit markets saw hedge protection bought early on in the week and then covered as real money started to sell their bonds on the back of redemptions in the last two days. The high-yield bond ETF had its biggest weekly loss in 13 months (notably clinging to the Lehman ledge levels). Equity markets suffered too (down 3.5 to 4.0% from the FOMC) with the S&P's worst week of the year (even as it bounced off its 100DMA). Most sectors hung around the 3-4% drop but homebuilders are down over 8% since the FOMC. The USD surged over 2.1% on the week with JPY's worst week in 43 months. VIX ended the day down 1.7 vols at 18.8% but beware as OPEX and hedge unwinds into underlying covers seems prevalent. Gold's worst week in 21 months left it back under $1300.
http://www.zerohedge.com/news/2013-06-21/treasuries-worst-week-50-years-stocks-worst-week-2013
NO, the spread is widening between all the bonds that need QE and treasuries. There will be demand for treasuries as pristine collateral for clearing houses. There is a shortage of these bonds. Other bonds are on their own and will be hurt by a withdrawel of QE.
The only thing that can stop demand for treasuries is if companies stop borrowing and stop taking default swaps as a requirement to get a loan.
That could happen.
How is the 2007 peak buyer different from the 2013 peak buyer? Is the 2013 peak buyer less leveraged?
The difference is today’s peak buyer has more ‘skin’ in the game.
Problem is, systemically, there is much more leverage today vs then. As a result, home equity is simply a temporary credit that can be deleted.
It’s funny to see the talking heads on the business channels pushing for Janet Yellen, but now as an early replacement for Bernanke.
Recent Graduates Have Saved A Negative 13% Down-Payment On Their First Home
Of course, these are the same people that the bulls are counting on for household formation, population growth, job creation and other equally irrelevant arguments for strong housing demand in the future. The actual delinquency is much higher if the number of loans not yet due or in forbearance are excluded.
This is the future of real estate. A bailout is needed before these future home owners purchase a home – table by US Congress, joint economic committee, click to enlarge.
http://www.zerohedge.com/news/2013-06-21/recent-graduates-have-saved-negative-13-down-payment-their-first-home
That’s just wonderful amigo. Did you happen to look at the California stats?
Average debt: $19,271
Percent with debt: 51
That means the average college grad has less than $10k in student debt. With the state’s median home price clocking in at $417k, the negative down payment for recent California graduates is 2%.
Of course, these are the same people that we are counting on for household formation, population growth, job creation, etc.
Acid Test Is On!
10 Year Bond Yield:
1.62% ~ May 2, 2013
2.51% ~ June 20, 2013
And all it took was a silly little (bantam, diminutive, dinky, dwarfish, fine, half-pint, Lilliputian, little, pint-size, pocket, pocket-size, puny, pygmy, shrimpy, slight, smallish, subnormal, toylike, undersized) .89 Basis Points to cause chaos in the Orange County real estate market. I’m hearing a lot of stories withing the halls of to local REIC.
If this trend continues, many local home sellers are going to be very, very, very disappointed.
Please expand?
Agreed. Let’s hear some stories.
Holy Smokes!
Did we all just watch a seller’s market flip back to a buyer’s market in less than 5 days? If 30 year mortgages touch 5% by next Friday, we may go into full real-estate meltdown.
2 Houses I’m watching just had a decent price DECREASE today, no doubt in response to rates…
The cynic in me thinks if it does it hit 5% there will be some sort of announcement from the Fed or they will just “temporary” increase the printing. There has to be tremendous pressure from the banks to increase the printing.
What is the point of Fed buying MBS from Freddie and Fannie? Seems like a waste of effort moving assets from one pocket back to the same pocket. To provide liquidity?? No ones gonna buy these junk!!
” However, with the member banks of the federal reserve exposed to a $1 trillion in unsecured mortgage debt, stimulating housing to make prices go up was considered essential to save the banking system”
With member banks exposed to somewhere around 1 quadrillion nominal in interest rate swaps, even if net is 5%, or 50 trillion, I doubt if the value of housing is even a blip on their screen. When a counter party defaults, net becomes nominal.
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