patrick.net

Hey --- the good news is that, according to theory, house prices will go down as mortgage rates go down ;)

I don't think this will affect home prices much. Probably interest rates aren't limiting demand right now as much as economic uncertainty, wage stagnation, and high food/fuel costs.

Plus, how much below 4% will they go (30 yr fixed today is 4.13)?

Plus plus, this is bad timing on Benny's part. First, this would have a greater impact if this was done at the start of the spring selling season. Second, if rates are going to be low through 2013, what's the rush to buy now? Sure, you may get a better rate by 0.25-0.5, but hey, house prices could also drop another 5-10%

Refi's, on the other hand, may pick up:

Will there be another Refinance Boom?
http://www.calculatedriskblog.com/2011/09/will-there-be-another-refinance-boom.html

I think the psychology here is important. The Fed will do whatever it takes to stabilize the housing market. Once house prices start going up, more people will be able to refi resulting in more stability. It could bounce back quickly.

they are saving the banks, not the housing. any affect on housing is an afterthought or accident not an intent.

FortWayne says

they are saving the banks, not the housing. any affect on housing is an afterthought or accident not an intent.

http://en.wikipedia.org/wiki/Federal_Reserve_System

Current functions of the Federal Reserve System include...
- To address the problem of banking panics
- To serve as the central bank for the United States
- To strike a balance between private interests of banks and the centralized responsibility of government
-- To supervise and regulate banking institutions
-- To protect the credit rights of consumers
- To manage the nation's money supply through monetary policy to achieve - the sometimes-conflicting goals of
-- maximum employment
-- stable prices, including prevention of either inflation or deflation
-- moderate long-term interest rates
- To maintain the stability of the financial system and contain systemic risk in financial markets
- To provide financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system
-- To facilitate the exchange of payments among regions
-- To respond to local liquidity needs
- To strengthen U.S. standing in the world economy

bert says

The Fed will do whatever it takes to stabilize the housing market.

As opposed to what the Fed has been doing for the last 3-4 years? What makes you think it will work now? Giving more money to banksters hasn't really done much besides giving them record profits again and creating a phantom rally in the stock market.

corntrollio says

As opposed to what the Fed has been doing for the last 3-4 years? What makes you think it will work now?

Bingo.

corntrollio says

As opposed to what the Fed has been doing for the last 3-4 years? What makes you think it will work now? Giving more money to banksters hasn't really done much besides giving them record profits again and creating a phantom rally in the stock market.

Because rates went to zero and everyone thought the Fed could do no more. But today's action changes the psychology. The Fed has signaled that recovery is more important than inflation risks, and it has the ability to act.

bert says

Because rates went to zero and everyone thought the Fed could do no more.

Except that the Fed has already been doing more. QE3 by a different name is not new.

corntrollio says

QE3 by a different name is not new.

It's not exactly QE3 - no additional purchases (i.e., the balance sheet is not expanding). Just a re-alignment of assets. They are selling off shorter term bonds and buying longer term bonds.

bert says

The Fed has signaled that recovery is more important than inflation risks, and it has the ability to act.

Not exactly either... check out what direction commodities went today (hint: down). If Benny was truly careless about inflation, he would have done QE3, or at the very least taken the interest on reserves held at the fed down to zero.

corntrollio says

Except that the Fed has already been doing more. QE3 by a different name is not new.

QE2 wasn't a good idea. By buying treasuries with new funds, they created the perception of long term inflation that actually had the reverse affect of raising long term rates. I think they learnt their lesson with this new approach.

terriDeaner says

It's not exactly QE3 - no additional purchases (i.e., the balance sheet is not expanding). Just a re-alignment of assets.

Yeah, I understand the argument both for sorta-QE3 by a different name and for not sorta-QE 3 by a different name. I think one thing that's clear, if this is not QE3, is that QE3 will not be as public as QE1 or QE2 because they won't want to admit that they're powerless to fix this through such methods.

0% interest rates wouldn't change a thing for many of the people that are currently holding the economy back. These are the recent short sale, foreclosure people that due to squatting, living with family, etc. have a down payment in hand (sometimes a large one) but cannot qualify for a new mortgage due to the credit impact. And I am not talking about a low FICO here. FHA allows ridiculously low FICO but if you have the black mark on your credit history you have to wait the mandatory period. So what would happen if FHA, Fannie and Freddie all announced a forgiveness program. If you have a job, some level of down payment (10, 20, 50%), agree to pay PMI and agree to above market rates we underwrite a loan for you today. Hell even write in some exclusion of state level non recourse laws (if that is possible). Doing this would open the floodgates to thousands of buyers currently waiting on the sidelines in markets where housing has fallen to the point that renting is really not a good decision. With inventory falling in these kinds of markets (e.g., Phoenix) the rush of newly qualified buyers and former renters into the market would drive prices up significantly. Whether this is good is another matter, but it seems to be the goal of these interest rate moves by the Fed which continue to do nothing. The reason is that low rates do not help the hundreds of thousands of people who lost their homes requalify anytime sooner.

atst1138 says

So what would happen if FHA, Fannie and Freddie all announced a forgiveness program. If you have a job, some level of down payment (10, 20, 50%), agree to pay PMI and agree to above market rates we underwrite a loan for you today. Hell even write in some exclusion of state level non recourse laws (if that is possible). Doing this would open the floodgates to thousands of buyers currently waiting on the sidelines in markets where housing has fallen to the point that renting is really not a good decision. With inventory falling in these kinds of markets (e.g., Phoenix) the rush of newly qualified buyers and former renters into the market would drive prices up significantly.

So we should continue helping irresponsible people? That sounds like a great idea.

What's wrong with traditional lending standards? They worked for a long time before this financial engineering nonsense. People who "lost their homes" (which happened because they decided to rent them from the bank in an irresponsible manner) don't deserve new ones. Instead, we should be helping responsible people.

They simply don't get it. No level of intervention, interest rate reduction, tax credits, or any other "fixes" will solve the problem of the housing market. This is no-nonsense crap that anyone with half a brain should get. That is to say that home prices spent such a long time being artificially inflated with yet more manipulative market mechanisms that they rose to levels that grossly outpaced real incomes.

This is STILL very much the case in many coastal cities. I make a 6-figure income and there is absolutely no reason why a crappy, 3 bedroom starter home in a halfway decent area should still cost 500k+. That is reality. Banks are in no position or in any mood to start up whatever loan products that would enable home prices to resume the climb they were on during the boom. Prices as stated are still at levels that do not support real incomes- even very good incomes.

The answer is one nobody wants to hear but ultimately will happen is that prices- even prices now- will have to fall and fall back to levels that people- especially those in the middle class- can actually afford. As far as I'm concerned places like the Bay Area are still in a bubble. The prices are maxed out at a level where the populace can barely afford anything. Nothing is going to change that other than one thing: Lower prices.

APOCALYPSEFUCK is Tony Manero says

Why not offer housing buyers oral sex and a decade's supply of Schlitz?

Change the Beer to Anderson valley Hop Ottin'n IPA and I'm IN!!!.

refinancing plus allowing underwater mortgages to refi. All of these little things should add up to stabilize the market. There will be fewer distressed sales where the mortgage adjusts and people cant afford the higher rate.

This will especially apply in the high end areas where prices havent fallen by much yet and people would like to keep their homes if they can afford to.

toothfairy says

refinancing plus allowing underwater mortgages to refi.

Maybe. Remember that the refinancing standards for underwater homedebtors would have to change too...

edvard2 says

The answer is one nobody wants to hear but ultimately will happen is that prices- even prices now- will have to fall and fall back to levels that people- especially those in the middle class- can actually afford. As far as I'm concerned places like the Bay Area are still in a bubble. The prices are maxed out at a level where the populace can barely afford anything. Nothing is going to change that other than one thing: Lower prices.

Option 2: Wage inflation... The govt is already doing this by cutting payroll taxes... A family making $100,000 got a $2000 raise last year... And if obama gets his way another $1000 raise this year.... Totally $5000+ over the past two years...

bert says

The Fed has signaled that recovery is more important

That word RECOVERY seems to allow the masses to go limp/numb/blind.
WHAT EXACTLY ARE WE RECOVERING FROM ?
How are we going to recover from the loss of millions of jobs that became obsolete in the computer industry ?
WHY do we continue to allow gubmint to blow smoke up our assets ?
WHY do we continue to allow gubmint to blow up our assets ?
WE ARE PAYING THEM TO WASTE OUR PROPERTY ! THEY ARE SPOILED ROTTEN !
THEY NEED TO BE TAKEN FOR A RIDE ON THE HOOD !

Is that Patrick ?

realistic investor says

By the way back in 1970 the population:
- bellow the age of 20 was 76,970,400
- above the age of 44 and bellow 65 was 41,809,769

realistic investor says

In 2010 the population:
- bellow the age of 20 was 83,267,556
- above the age of 44 and bellow 65 was 81,489,445

Nice.

corntrollio says

So we should continue helping irresponsible people? That sounds like a great idea.
What's wrong with traditional lending standards? They worked for a long time before this financial engineering nonsense. People who "lost their homes" (which happened because they decided to rent them from the bank in an irresponsible manner) don't deserve new ones. Instead, we should be helping responsible people.

I think the point was to get the economy moving. Sure we'd all like to see the bad guys loose and the financial sinners pay for their sins, but if the cost of that life lesson is stagnation or another recession, the cost might be too high. People who didn't behave irresponsibly still lost their jobs. They are still struggling as much if not more than the irresponsible who could squat and save before they were foreclosed upon. So long as traditional lending standards are put into place beforehand, I think this is an idea to consider. It doesn't say that the irresponsible were right or absolve them of culpability, only that getting the housing market out of the ditch is more important than punishing those who messed up regardless of how satisfying that would be.

realistic investor says

Reflecting weak demand, fewer homes were under construction in August than at any time on records dating back to 1970

What's your point? I would think that fewer homes under construction would lead to higher prices?

futuresmc says

It doesn't say that the irresponsible were right or absolve them of culpability, only that getting the housing market out of the ditch is more important than punishing those who messed up regardless of how satisfying that would be.

But you can do both. You can get the irresponsible people out of those houses by more efficient foreclosure and put responsible people into them at lower prices. It's win-win.

bert says

Current functions of the Federal Reserve System include
-...
-...

Listing out "functions" of the Federal Reserve helps create the illusion that they are a government entity. They are not, they are a private bank which benefits greatly from the priveledge congress gave them of controlling our money supply.

Fortwayne was spot on when he said "they are saving the banks, not the housing. any affect on housing is an afterthought or accident not an intent." But I do believe propping up housing is part of the plan to save banks, it's just not the whole story. Banks are also facing problems because of the European debt crises and their investments in foreign bonds.

bert says

Hey --- the good news is that, according to theory, house prices will go down as mortgage rates go down ;)

I thought the theory was prices go up when rates go down, although rate policy is reactionary so you often see the opposite. (Rates are dropped as prices drop to prevent deflation, then raised as prices raise to control inflation...)

bert says

realistic investor says

Reflecting weak demand, fewer homes were under construction in August than at any time on records dating back to 1970

What's your point? I would think that fewer homes under construction would lead to higher prices?

Reducing supply can be a method of boosting prices, but this is supply production reducing to meet lowered demand. Occuring in this order most likely indicates lower prices coming.

Shawn says

I thought the theory was prices go up when rates go down, although rate policy is reactionary so you often see the opposite. (Rates are dropped as prices drop to prevent deflation, then raised as prices raise to control inflation...)

If the economy was constant, then lower interest rates would result in higher prices.

But in practice it's all driven by the economic situation.

When the economy is weak, the fed lowers interest rates.
When the economy is strong, the fed increases interest rates (to control inflation).

Likewise, when the economy is weak, people are less likely to buy houses and prices are lower.
When the economy is strong, there's lots of money and people all compete for houses, raising prices.

bert says

When the economy is strong, the fed increases interest rates (to control inflation).

ORRRRR,,, because they enjoy those profits.

If the FED were DEAD, and interest rates were NOT effected, What would be the worst case scenario to our economy ? Would it self correct ? OR fall off a cliff ?

TMAC54 says

fall off a cliff ?

LOL. I kinda like the images you post.

TMAC54 says

, because they enjoy those profits.

the Fed does not "profit", funds after expenses are given to the Treasury.

Banks do not profit from inflation, either.

What would be the worst case scenario to our economy ? Would it self correct ? OR fall off a cliff ?

The 19th century tells us the latter, repeatedly.

http://en.wikipedia.org/wiki/Panic_of_1837#See_also

bert says

Because rates went to zero and everyone thought the Fed could do no more. But today's action changes the psychology. The Fed has signaled that recovery is more important than inflation risks, and it has the ability to act.

Changed what psychology? He just went from doing "Dick All" to "Jack Shit"?

We are the "better than nothing" generation.

Of course something being more nothing.

Ben would do more for the economy if he gave Helicopter rides.

With regards to the title of this post, does anyone have any idea how low rates might go, and how long they might stay stay there? I've got a mod that's supposed to lock in Dec and I'm hoping they reach ridiculously new lows. Hey, someone should benefit from all this Armageddon! Selfish, I know.

Bellingham Bob says

The 19th century tells us the latter, repeatedly.

Thank You Bob, Good article. But I meant fall off a cliff and go splat ! Those "panics" could all be referred to as adjustments. Approximately 40% of the banks failed. The article shows us that history does repeat itself. TOO bad the FED had not read these quotes from your linked article before our most recent (and by far largest) spike ?

#1. The enormous extension of bank credits during the three years before the breakdown in 1837 was rather the symptom than the cause of the disease. The fever of speculation was in the veins of the community before "kiting" began. Bank officers dwelt in the same atmosphere as did other Americans, and their sanguine extravagance in turn stimulated the universal temper of speculation.

#2. But the increase of government deposits was only fuel added to the flames.BOB ! Does the Treasury enjoy the higher interest rates ?

My point being almost typical of Tenouncetrout. I would be happy if the Fed did Jack Diddly, but as history shows they just make things WORSE !

They created the illusion of a DOUBLE DIP recession. We all know it is the same one, But they kicked the small business people just as they thought they were recovering. Recovery is a fraud !

I see the FED as just another interfering profit grabbing middle man. One imposed by law.

bubblesitter says

LOL. I kinda like the images you post.

If you zoom in , you can see the facial expression on the Driver's face !!!

Monkeyswing says

Hey, someone should benefit from all this Armageddon! Selfish, I know.

Business is business ! Gubmint has promised interest rates to remain near ZERO % for two years. I hope they don't change their mind !!!

TMAC54 says

I see the FED as just another interfering profit grabbing middle man. One imposed by law.

The Fed was established by Congress because the previous laissez-faire system sucked.

It was a very conservative initiative, taking monetary policy out of the hands of Congress and vesting it in a quasi-independent system of governors and board.

The Fed does not grab profits, I don't know where you're getting that other than some stupid rightwing crank site (half the web qualifies these days).

The Fed's mission prior to Greenspan was to crack down hard on the growth of credit whenever things -- ie. credit debt feedback expansion -- began to get out of hand:

"His most famous quote about his central banking philosophy was that the job of the Federal Reserve is "to take away the punch bowl just as the party gets going,"[3] referring to the need to raise interest rates when the economy is at its most active."

http://en.wikipedia.org/wiki/William_McChesney_Martin

The Fed lived up to this in the 1970s, too. Carter's Fed appointments were heartless bastards who desired to kill credit expansion at whatever cost to the economy or the incumbents.

http://research.stlouisfed.org/fred2/graph/?g=2pW

They were good men, if you like bankers.

Greenspan, a Randroid player for Team Red, did to the Fed what J Edgar Hoover did to the FBI, fuck it up.

But it wasn't the Fed that dropped the ball during the boom years, it was the System as a whole. Congress had been taken over by Team Red in 1995, and the White House fell after a desultory battle in December 2000.

Once fully in power, Team Red wanted to destroy this country, and they did a pretty thorough job of it 2001-2006.

Looks like they're coming around for another pass in 2013, too. Not sure what's left to fuck up, but they'll find something most like.

Bellingham Bob says

The Fed was established by Congress because the previous laissez-faire system sucked.

I believe the origination of the FED was for the financial benefit of the people.
The intentions were honorable, the practices becoming corrupt. Profit breeds competition, Excess profit breeds ruinous competition. Other inflationary regulation could have been put in place that eliminates government monetary benefit & influence. For instance; your "Hard Drive Doctor" business enjoys 50% +/- growth this year. You must secure a percentage of that windfall for a period of time so that WHEN times become leaner, business's, even house flippers / floppers have built in slush accounts.
GUBMINT has NO RIGHT to pick and choose the private business's it wishes to give OUR MONEY to.
I consider myself an honest man, but don't leave me (or Bernie) with a blank check in a market that's exploding !

TMAC54 says

GUBMINT has NO RIGHT to pick and choose the private business's it wishes to give OUR MONEY to.

you really don't know what the fuck you're talking about. Goodbye!

Bellingham Bob says

Team Red wanted to destroy this country

2+2=4 is an argument. Arguing is good. Bickering should be left to those adamant politicians, religious fanatics & niner, raider fans.
I seek solutions.

Why does someone believe you when you say there are four billion stars, but check when you say the paint is wet ?

I heard this fish was designed by a committee !
We need to redesign gubmint (committee) so it is held accountable.