Wednesday, October 31, 2007

FED Cuts, housing continues downward spiral.


At 11:15a PST the FED announced a small rate cut of 0.25% this produced an immediate rally in stocks and a sell off in bonds. Most mortgage rates rose as the FED statement indicated that they were concerned about inflation. I know I see it throughout the everyday economy. Have you bought gas or groceries recently? Inflation is the enemy of the lender as it destroys the value of the money they receive over the life of the loan. The dollar fell following the announcement and oil spiked to a record high. Oil is traded in dollars so as the value falls relative to other currencies the price per barrel rises in general. Gas prices should follow suit in the coming days.


How does this matter at all to housing? Well, I would expect rates to remain somewhat range bound throughout the next few weeks. Any additional confessions of major losses by world banks on mortgage paper would result in a flight to quality that would push high quality mortgage rates down.


In other housing news that is sure to put pressure on prices is Citigroups announcement today that they will no longer do purchase money 2nd mortgages in CA. This is Citi's way of avoiding the meltdown in housing in bubblicious California.


Case-Shiller announced their August housing report yesterday. They produce the most widely respected index on housing. They track individual metros. Here is a breakout chart from Time Magazine. Some cities look like a roller coaster ride at Six Flags, enjoy:


2 comments:

North Carolina Mortgage said...

it's weird that the FED cuts the fed funds rates...and the mortgage rates GO UP!

westwest888 said...

What if Ben Bernanke is using dollar devaluation in a game of chicken with China to force them to abandon the currency peg? Exhibit A:

"The authority sold HK$7.828 billion ($1 billion) to defend the currency yesterday, twice as much as two previous interventions since Oct. 23."

I think the Fed knows everything we know, and then some but when they speak it's to a world audience so they're tight lipped. To us, it appears they're trying to destroy the currency. I think they're doing something analogous to seeing how far they can pull the cooling rods out of a nuclear reactor without reaching critical mass. Except the reactor is the global economy and the fuel is China.

Congress, the cabinet, and the state department can't seem to get China to let the Yuan (RMB) float. But maybe that rogue branch, the Federal Reserve, can force their hand. And can they restore the currency's former value afterward without sending us into a huge recession?