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Was the Fed Right After All? - Q3 Reports Suggest Bernanke May Have Been Onto Something

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Mortgage Professional America | 19 Oct 2012, 04:51 PM Agree 0
There’s been much frustration in the past two years with the actions and proclamations of the Federal Reserve Bank, with a particularly strong chorus of outrage directed at Chairman Ben Bernanke.
  • William Matz | | 23 Oct 2012, 02:14 PM Agree 0
    To focus the inquiry of the effects of QE just on housing is far too narrow and misleading. Of course, lower rates provide a stimulus to the housing market. But to what extent are the low rates hurting the ecconomy, including housing? And might today's low rates be setting up a future housing bust? Here are a few thoughts on those issues.

    The flip side of the benefits of low rates to borrowers is the damage to savers, especially seniors. How many potential buyers are disqualified because their interest income has dried up and or their pension income has decreased or even collapsed due to low yields? How much damage is there to the economy from lower spending due to the huge drop in interest income? And how many jobs (and potential buyers) have been lost due to the dampened consumer spending?

    In the future will much of our market be frozen in place due to having fixed rates that are half or less of the "normal", higher rates? (Remember 1980-82? Virtually the only sales were all cash or assumptions.) The unresolved issue is the extent to which today's low rates will distort tomorrow's market, decreasing mobility, just as today's underwater houses do.

    Therefore, I believe it is short-sighted to look just at QE's effect on housing. Are today's low rates just the housing version of "Cash for Clunkers"? There is a real danger that the double whammy of the expected future higher interest rates and higher materials costs could well result in another housing bust. But there are the others who project that we will have a low rate, stagnant growth environment, possibly for decades. Who knows?, But neither scenario is ver appealing.
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