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.