Saturday, October 1, 2011

Implications buried within Housing News


Much to think about these days, especially towards the housing market…

Lots of implications within the pages of the daily news: government intervention has turned the housing market into a serious political affair. The best way I can summarize “Operation Twist” is by saying:

1.      The Federal Reserve has become more fiscal than monetary in purpose, promoting economic growth and employment more than fighting inflation and maintaining price stability, and

2.      Net selling of short term rates, and buying more long-term rates, is an effort to flatten the yield curve (though I fear an inverted YC – which is a bad thing).

The goal is to improve long-term financing of major assets (like homes) and simultaneously shift the liability obligations of the government on future generations. This is unsettling, and I fear that some degree of manipulation is in place. Well, obviously there is meddling going on…politicians and Wall Street, the like, have been meddling for a long-time now! Why else do people vote for pro-intervention policies – we tend to believe that people know what they are doing...

Furthermore, the new limits of government risk-backing have now been capped at $625,500 for a residence (with exceptions in NYC, LA, and Washington). I tend to ask the question: which underwriting agency will be pooling the mortgages of homes that are over this target price? That is a real implication. I am also thinking about the implications on supply-demand dynamics…

No solutions coming from me on these problems. I would only suggest, as I already have, that you align yourself with professionals whom you can trust to offer you fair and objective opinions.