September 24, 2009
The Fed and the Housing Recovery
The government is not ready to start raising interest rates. Bernanke is increasingly confident of recovery in 2010 and the recent FMOC meeting has agreed to leave interest rates at historic lows.
Fed To Phase Out Bond Purchases
The Federal Reserve has been a significant purchaser of Treasury bonds buying as much as $7 billion per auction. As the Fed begins to phase out , you can expect long term yields to rise. The Fed, with increasing confidence in the system is now beginning to hand the economic levers back to the system. Leaving it to the banks and the borrowers to work it out.
FHA Also Tightens the Rules
If you didnt have a 20% down then the FHA was likely on your short list of lenders. FHA as well as Freddie Mac and Fannie Mae had an unspoken political mandate to make home ownership affordable for all. For the first time in 75 years FHA will tighten up its lending structure. This will cause a slowdown in the condo markets as they become more expensive and complicated to finance. There is an article about the new FHA guidelines here
There will be a recovery, but housing wont lead. The banks still have major problems on the horizon and that will keep sectors that rely on borrowed capital weak until the last of the bad debt is out of the system, we have job growth and the secondary markets function. As the Federal agencies begin to pull back from the huge stimulus programs we are likely to see a rise in interest rates as more supply lingers in the bond markets and a slowing in housing markets as the tax credit no longer supports first time home buyers.
The Fed will move to the sidelines and monitor the markets, ready to step back in if it moved too soon. In the meantime it hopes that we are at a point were the system can mend itself, where market forces can begin to take on the job - off life support.
The focus will be on the secondary markets.The Fed will stay the course and purchase $1.25 trillion in mortgage-backed securities to support the mortgage market until the end of 2010, when the program expires. The Fed will begin a phase out to test the markets and see if investor interest is strong enough to sustain a housing recovery.
The Fed will stay the course and purchase $1.25 trillion in mortgage-backed securities to support the mortgage market until the end of 2010, when the program expires. The Fed is expected to phase out and test the markets and see if investor interest is strong enough to sustain a housing recovery.
Bringing foreign money back into the system is necessary so that we dont create even more inflationary pressure is a key strategy. The Fed invited sovereign investment funds to partner up with the Treasury to buy toxic mortgages to give banks more room to recapitalize.
China and other foreign investors are being wooed to step in and take a chance, in partnership with the Treasury. The other big pool of money is public, the stock markets. The REITS have been issuing new stock to raise money, 15 billion to date, getting cash heavy and waiting for the bottom to show. Some REIT indexes are up 30-50% in anticipation of the final unwinding of this great housing bust. Then, as always... a new beginning.
Thanks for Reading
Banks and the Housing Recovery
FHA has New Rules
Commercial Real Estate: The REITS Will Mop it UP
Posted by Howard at Thursday, September 24, 2009