Fed Targets Housing Market
An excellent read from John Mauldin at Investors Insight which clearly delineates the Fed Chairmans recent comments and anticipated future actions regarding interest rates and asset markets.
Bond market pricing reflects anticipation of a pause in rate hikes, we do not anticipate any such pause occuring, this will catch the bond market off guard.
GDP growth will continue due to economic under currents which latencies in reporting mechanisms are hiding, and the rebuild in the wake of Katrina will add to this.
In addition, +$65 oil will cause inflation throughout the supply chain, these conditions will keep the Fed raising until the yield curve is flat or inverted.
The GSE's, FHLMC (see todays post) & FNMA have been reigned in on new loan creation, less easy money supply will cause mortgage rates to rise even further.
The following is the conclusion of Mauldins post which matches our contentions and posts from the last year. We highly recommend you read the whole text, slowly and thoroughly.
Greenspan is taking the punch bowl away in measured steps. He is being as transparent about his intentions as a Fed Chairman can be. Who will get hit first? Speculators in housing markets that have borrowed with no (or little) money down at short term interest only rates.
I think the Fed is going to increase rates until the rampant speculation (no pun intended) in the housing market goes away. They are going to raise rates until housing slows down.
Of course, since 40% of new jobs in the last 4 years have come from the new housing sector, and since a great deal of the increase in new consumer spending has come from cash out financing, this is likely to slow the economy as well. They are prepared for that.
When the housing bubble starts to deflate, when the speculators have been put away, when the economy starts to slow and roll over into recession, they will once again lower rates, slowly providing a prop to the real housing market that 90% of the country participates in.
That 1999 $250,000 home which is now an $800,000 home in Orange County? It is going to be along time before that house will sell at that price again once the Fed is finished. But most of us will do just fine. And maybe we get to re-finance our homes at an even lower rate.
All housing bubbles have this in common. At first, people refuse to sell at a loss (another common psychological trait). It takes a while, but as banks start to repossess properties in your area, they will put them on the market.
Prices start to drop. Then the psychology changes. The same human beings that thought that houses could only go up now think they can only go down. They start waiting. Prices go lower. Inventories build.
The Fed starts lowering rates and you will get a chance to buy a home at a lower price at interest rates lower than they are today. You have been warned.
Final thoughts: the housing bubble can go on longer than one might think, and the Fed can raise rates more than anyone now suggest. It is going to be a very interesting ride. Strap yourself into your seats.
Full Text
Bond market pricing reflects anticipation of a pause in rate hikes, we do not anticipate any such pause occuring, this will catch the bond market off guard.
GDP growth will continue due to economic under currents which latencies in reporting mechanisms are hiding, and the rebuild in the wake of Katrina will add to this.
In addition, +$65 oil will cause inflation throughout the supply chain, these conditions will keep the Fed raising until the yield curve is flat or inverted.
The GSE's, FHLMC (see todays post) & FNMA have been reigned in on new loan creation, less easy money supply will cause mortgage rates to rise even further.
The following is the conclusion of Mauldins post which matches our contentions and posts from the last year. We highly recommend you read the whole text, slowly and thoroughly.
Greenspan is taking the punch bowl away in measured steps. He is being as transparent about his intentions as a Fed Chairman can be. Who will get hit first? Speculators in housing markets that have borrowed with no (or little) money down at short term interest only rates.
I think the Fed is going to increase rates until the rampant speculation (no pun intended) in the housing market goes away. They are going to raise rates until housing slows down.
Of course, since 40% of new jobs in the last 4 years have come from the new housing sector, and since a great deal of the increase in new consumer spending has come from cash out financing, this is likely to slow the economy as well. They are prepared for that.
When the housing bubble starts to deflate, when the speculators have been put away, when the economy starts to slow and roll over into recession, they will once again lower rates, slowly providing a prop to the real housing market that 90% of the country participates in.
That 1999 $250,000 home which is now an $800,000 home in Orange County? It is going to be along time before that house will sell at that price again once the Fed is finished. But most of us will do just fine. And maybe we get to re-finance our homes at an even lower rate.
All housing bubbles have this in common. At first, people refuse to sell at a loss (another common psychological trait). It takes a while, but as banks start to repossess properties in your area, they will put them on the market.
Prices start to drop. Then the psychology changes. The same human beings that thought that houses could only go up now think they can only go down. They start waiting. Prices go lower. Inventories build.
The Fed starts lowering rates and you will get a chance to buy a home at a lower price at interest rates lower than they are today. You have been warned.
Final thoughts: the housing bubble can go on longer than one might think, and the Fed can raise rates more than anyone now suggest. It is going to be a very interesting ride. Strap yourself into your seats.
Full Text
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