Housing: 24 Hours From the Next Leg Down?

In 24 hours, the Federal Reserve will stop buying mortgage-backed securities. When it does, there's a good chance the economy will shift in big ways.

Here's the deal: In late 2008, the Fed announced plans to buy up $500 billion worth of mortgage-backed securities issued or backed by Fannie Mae (NYSE: FNM  ) , Freddie Mac (NYSE: FRE  ) , and Ginnie Mae. It doubled down four months later by committing another $750 billion, bringing the total to $1.25 trillion.

The impact has been twofold. First, buying mortgage-backed securities lowered interest rates on home mortgages. Second, it pumped $1.25 trillion of newly minted cash into the economy. This is where you often hear about "quantitative easing" -- aka firing up the printing press.

But with its $1.25 trillion mission nearly completed, the Fed will cease buying mortgage-backed securities tomorrow, March 31. The big question is what impact that'll have on housing going forward.

The honest answer is that no one really knows. Measuring the impact the purchases had in the first place is imprecise at best, and pondering life once they stop is even more so.

There are some reasonable assumptions, though, so we'll work from there.                          

Stimulus on steroids
First, how big is $1.25 trillion? Really freakin' big is the right answer, but in perspective:

  • The value of all U.S. mortgages is roughly $12 trillion.
  • Fannie and Freddie own or guarantee more than $5 trillion of mortgages.
  • The value of all mortgage-related securities issuance in 2008 was $1.3 trillion.
  • For $1.25 trillion, you could buy all of Coca-Cola (NYSE: KO  ) , Boeing (NYSE: BA  ) , Apple (NYSE: AAPL  ) and ExxonMobil (NYSE: XOM  ) and still have enough left over to write a check for $1,820 to every man, woman, and child in America.

So the Fed clearly wasn't messing around here. This was, by any measure, the largest single stimulus package of the past two years. Or in history, for that matter.

Just after the buying began, Fed Chairman Ben Bernanke boasted that "mortgage rates dropped significantly on the announcement of this program and have fallen further since it went into operation."

By how much? The Fed estimates the program lowered mortgage rates by between 25 and 100 basis points (100 basis points is 1 percentage point).

When the program ends, one Fed official estimates that mortgage rates will rise by 50 to 75 basis points. Private estimates call for anything between 50 basis points to as much as 200 basis points.

Again, no one really knows for sure. But we can take these estimates and guess what impact they might have on housing prices.  

Show me the money
When purchasing a house, buyers don't necessarily care about sticker price; what they care about is how much house they can buy at a given monthly payment. If someone can afford a $1,500 monthly mortgage, and $1,500 will finance a $300,000 house, then that's the person's market. If, thanks to low interest rates and financial chicanery, $1,500 can finance a $700,000 house (as it likely could have in 2005), then that's the person's new price range. In either case, home prices are linked to what borrowers can buy at a given budgeted monthly payment. Many other factors are involved here, like, say, consumers' mood, the outlook for price appreciation, and the ability to refinance. But the amount of house you can buy at a given monthly payment is a pretty good foundation to measure price sensitivity.

So let's say that, after the Fed stops buying mortgage-backed securities tomorrow, 30-year, fixed-rate mortgages jump 50 basis points from 5% (where they are now) to 5.5%. Or how about to 6%, or 7%. What could happen to home prices?  

Nothing good
Assuming a 30-year, fixed-rate mortgage at today's 5% and a 20% down payment, a $1,500 mortgage payment will buy you $350,000 worth of house. If rates jump to 5.5%, $1,500 a month gets you $331,000. At 6%, $1,500 buys you $313,000, and at 7%, just $283,000. Compared with what you can buy today, that's a decline of 5.4%, 10.6%, and 19.1%, respectively.

Again, other factors are involved here. But is it possible that the end of buying mortgage-backed securities could hammer national housing prices by 5%, 10%, maybe even 20% more, all else being equal? Unless something else immediately takes its place, then yes. And it's not just possible, but quite likely.

As terrible as this financial crisis has been, it's been in an environment of falling interest rates that have significantly softened the blow. Starting tomorrow, we could get our first taste of what happens when the tide turns and interest rates really start to rise. And it could be ugly.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Coca-Cola is a Motley Fool Inside Value pick. Apple is a Motley Fool Stock Advisor recommendation. Coca-Cola is a Motley Fool Income Investor selection. The Fool has a disclosure policy.


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  • Report this Comment On March 30, 2010, at 2:15 PM, plange01 wrote:

    with the US now 15 months into a depression for all the endless talk the problems in real estate have not even started.over the next 3-5 years you can expect to see prices and sales fall by as much as 80%....

  • Report this Comment On March 30, 2010, at 3:11 PM, Borbality wrote:

    Only one way to find out. Let's just get this over with instead of paying untold millions to artificially prop things up for a few months.

  • Report this Comment On March 30, 2010, at 4:57 PM, madisonmarbles wrote:

    Borbality, please tell me where you expect to see home prices drop by 80% over the next 3-5 years. Many areas are already down 50% from 2005 highs. Another 80% would mean that these areas will be down to 10 cents on the dollar. That is nonsense. Where are you getting your numbers?

  • Report this Comment On March 30, 2010, at 5:14 PM, MKArch wrote:

    I think the national average home price is already down ~30% below the bubble highs and you could get mortgages in the 5% range back then so the decline in home price has already offset potential increases in interest rates as far as affordability. Didn't we have double digit interest rate mortgages in the 80's? I don't seem to remember a depression in the housing market back then. I'm pretty sure as the economy continues to recover, people go back to work and we all start feeling better about the economy, increased demand for housing will offset any modest increase in interest rates.

  • Report this Comment On March 30, 2010, at 5:15 PM, TMFHousel wrote:

    "Didn't we have double digit interest rate mortgages in the 80's? I don't seem to remember a depression in the housing market back then."

    There was also 12% price inflation, which kept nominal housing prices propped up.

  • Report this Comment On March 30, 2010, at 5:19 PM, TMFHousel wrote:

    To go further, MKArch, interest rates rose back then because of inflation. Today, interest rates could rise simply because the Fed stops buying, even if inflation stays flat or falls. That's a big difference.

  • Report this Comment On March 30, 2010, at 5:19 PM, Borbality wrote:

    madisonmarbles: Not to get too defensive, but it was the usual Plange01 predicting a further 80% decrease.

  • Report this Comment On March 30, 2010, at 5:25 PM, MKArch wrote:

    http://www.mortgage-x.com/general/historical_rates.asp

    O.K. we've survived 5.5%-7% interest rates at a time when I don't remember 5.5%-7% inflation rates.

  • Report this Comment On March 30, 2010, at 5:29 PM, Dannysea wrote:

    A lot will depend on the 125% loan-to-value Fannie has been kicking around and going from 3% to 5% down that both Freddie and Fannie are talking about.

    Then there is the 8,000,000+ shadow inventory that is building. Even with the banks and servicers doing twice the business this year, (they are hoping for 5,000,000 units,) that is roughly twice the the inventory coming on the market than last year.

    Three years ago who would have thought housing prices would have tanked? I surely would not have. I think plange01 could be right, but agree with Borbality also.

    Stats on the renegotiated interest and principle had a failure rate of 62% after 3 months this last year, but since the renegotiated units have gone from 85,000-ish to over 300,000-ish, the numbers are skewed; but within 6 months will prove the stat is even worse.

  • Report this Comment On March 30, 2010, at 5:32 PM, TMFHousel wrote:

    MKArch,

    I'm not quite sure what you mean by that. Again, the differences between higher interest rates caused by inflation and higher interest rates caused by the removal of stimulus are far different. In the early '80s, real estate didn't crash because higher interest rates were accompanied by price inflation, which was actually a boon for existing buyers because they could repay debts in inflated dollars.But when interest rates rise without inflation, as they likely will now, it causes legitimate losses.

    And to your point that "we've survived" in the past with higher interest rates, of course, I'm not predicting doom in any sense. Just that when the fed stops buying, real estate will likely take another leg down.

  • Report this Comment On March 30, 2010, at 5:32 PM, masterN17 wrote:

    I agree with (the unjustly accused) Borbality. There is no way out but forward.

  • Report this Comment On March 30, 2010, at 5:34 PM, TMFHousel wrote:

    er, was a boon for existing owners*

  • Report this Comment On March 30, 2010, at 5:51 PM, LessGovernment wrote:

    The only real cure for the housing problems of over supply, additional shadow inventory, high foreclosure rates, and extended by non performing mortgages, is deflation. Deflation is not something to fight becasue you can not fight it. You will only go further into debt fighting what is to come anyway. Deflation makes housing affordable again and that is how the excess supply will be sopped up. However, we have been fighting deflation sothe banks can re-negotiate their outstanding laons and replace them with new loans that can then be sold to Fannie and Freddie, which is just another way of saying all we are doing is transferring the losses from the banks to the taxpayer. Nothing has changed. The taxpayer will get screwed in the end by paying off the trillions of dollars that are building up on fannie and freddie and FHA books.

  • Report this Comment On March 30, 2010, at 5:55 PM, Dannysea wrote:

    In our area of SW FL, one of the hardest hit, we see housing that was selling for $350,000, now selling for 40-129,000. There are a few communities where houses that were selling for $160,000 are selling for less than $20,000. And with the average being closer to 60% less as we write these notes, the market has been overtaken by the demand. But what the buyers do not realize is the FL Supreme Court ruled that all foreclosure units, if they are occupied has to go through a 60-day review before the courts, and then if a warm body shows up in court, owner or renter, they are given another 60 days to stay where they are before the foreclosure can proceed.

    As a side note, we in the foreclosure business were used to seeing 11-14 months from the time someone made their last payment, to the time the foreclosure took place on the courthouse steps. As of the beginning of the year the average has gone from 2 years (if it is empty for a year,) to as high as 38 months not uncommon. Now add the FL Supreme Court ruling and the top number moves to +4 months, or 42 months of free-stay, (and oh you, Mr Banker must pay the taxes and Insurance beside. Thank You very much!)

  • Report this Comment On March 30, 2010, at 5:57 PM, LessGovernment wrote:

    There is only one long term fix for residential real estate - Deflation.

    Before the current residential real estate debacle will be fixed, more residential real estate debacles will be impacting the market. These additional debacles will be higher interest rates due to unchecked government spending and debt, and the largest generational hand off in history as the baby boomers start selling in the next few years, which will be prior to the current problem being resolved.

    With higher interest rates and with the upcoming generation having less economic opportunity and income than the boomers, there is only one direction, long term, for residential real estate values - down.

    Housing is a good place to put money for a place to live, but for the next ten to twenty years, it will be a bad investment.

  • Report this Comment On March 30, 2010, at 6:02 PM, madisonmarbles wrote:

    Borbality, my sincerest apologies...

    Plange01, where do you get your numbers? :)

  • Report this Comment On March 30, 2010, at 6:17 PM, MKArch wrote:

    I think the additional demand as the economy recovers will offset modestly higher interest rates. I also don't quite understand your linkage between price inflation, interest rates and home prices. To my memory price inflation has been relatively steady 3%-4% over the last couple of decades covered by the chart I posted a link to and interest rates ranged from 5%-9.5% which would include the range you are predicting rates may get to when the fed steps aside. To my memory housing prices over that period increased fairly steady until they went crazy in the middle of the last decade and have recently corrected.

    I don't see the correlation between interest rates in the chart I linked and my recollection of wages over the same periods. There were 2 pt. increases interest rates in the past that according to your logic should have been accompanied by something like a 20% increase in wages just to maintain then current home prices.

    Since housing prices didn't go down over these periods I assume people bought more modest houses than they could have at the lower interest rates when the rates increased to compensate. In fact as a LEN shareholder I know they are currently selling smaller houses and are successfully re-negotiating land use approvals for higher densities.

  • Report this Comment On March 30, 2010, at 7:15 PM, JustinSeine wrote:

    I wish you folks would clue my tax assessor into some of these thoughts! Even though we live in a sea of forclosure signs, he seems think the ones not in foreclosure are worth 6% more this year than last year. Apparently the statistical analysis models they use to compute these values are not sensitive to the effects of housing market collapses! 6% is the maximum increase they are allowed to assess in any single year???????

  • Report this Comment On March 30, 2010, at 7:34 PM, MKArch wrote:

    It looks like your system choked on my last response Morgan so here is another shot. You note that as interest rates increase from 5% to 7% the amount of house you can buy decreases by 5%-20%. You then argue this means unless household income increases proportionate to the decrease in buying power home prices must come down.

    In the chart I linked interest rates fluctuated in this range however until the popping of the bubble at the end of this past decade house prices always went up. Therefore by your logic when interest rates were going up 100-200 basis points at the same time housing prices were increasing household income must have been increasing more than the 10%-20% loss of buying power due to the higher rates.

    I don't remember that happening. What seems more likely to me is people bought more modest houses as affordability dropped in order to compensate. In fact as a LEN shareholder I know they are building smaller houses and successfully renegotiating land use approvals to get higher densities in their communities to adjust to current pricing/ affordability. Also as I pointed out in my first post prices are already down more than your projected loss of buying power. I also believe that as the economy recovers, people start going back to work and we all start feeling better about the economy an increase in demand will offset a decrease in affordability due to modestly higher interest rates.

    IMHO home prices are a lot more complicated than interest rates up home prices down.

  • Report this Comment On March 30, 2010, at 7:55 PM, MKArch wrote:

    BTW Morgan I'm an architect who got started in the profession in the mid 80's. I remember when I got started it seemed like the average house for a middle class family ranged from 1,500 s.f. to 2,500 s.f. A couple of years ago before the market collapsed I was regularly designing houses for middle class families from 3,000 s.f. - 3,500 s.f. I could see house sizes coming down to 2,500 s.f. - 3,000 s.f. with a modest interest rate rise. Not to mention plastic laminate counter tops in lieu of granite tops.

  • Report this Comment On March 30, 2010, at 7:59 PM, TMFHousel wrote:

    Great point on the sq. ft. size, MKArch.

    You and I never agree on anything, which is why I enjoy your posts. Keep them up.

  • Report this Comment On March 30, 2010, at 8:11 PM, boxxer55 wrote:

    Housing prices were primarily driven by a few macro-economic variables and one demographic trend and then right before the end - speculation.

    Macro economic variable #1 - long term downward trend in interest rates. If you graph yields on treasuries from 1982 to today, you see a fairly steady decrease in interest rates. This increases affordability and thereby folks can pay more for the same house and keep the same payment (see article).

    Macro economic variable #2 - more women entering the workforce. A continuation of a trend that started in the 1960s and only recently began to stabilize and even indications of a reversal. This also provided more household income available to support mortgage debt and allow families to afford to pay more for the same home.

    Something I didn't mention and I don't know how you classify this - but lower lending standards. Again a long-term phenomenon that I recall starting with home equity loans in the mid-1980s. Less down payment requirement, use a HELOC to fund your 15% downpayment - practically no actual downpayment required. That accelerated with the "everyone should own a home" movement when all lending standards were simply thrown out the window.

    The demographic trend was the baby boomer's moving through their child rearing and maximum earning years.

    After almost 25 years or nearly uninterrupted price appreciation, home buyers believed that they wouldn't fall and that homes were a sure bet for wealth generation.

    So - lets look forward, shall we?

    1) Interest rates no better than stable and probably rising. Impact - negative on housing affordability.

    2) Women are fully integrated into the workforce. At a minimum, dual income families are stable and at worst decline as folks recognize that a great house is not as important as being able to afford furniture and an occasional vacation (not to mention those that choose to have a stay at home parent)

    3) At best stable lending standards and more likely a permanent move toward tighter lending standards. This means higher down payments, tightening of requirements for ACTUAL down payments and better credit qualifications (job, history of repayment).

    4) Demographics - Boomers reign in their expenses to afford retirement. As they downsize and sell their second homes, who is going to step in behind them to buy? The next generation will not be ready or able until approximately 2023. (Never mind the impact of this trend on stocks - that is truly frightening)

    So, what is there to be optimistic about for the next 10+ years. No really, I am asking...... I want to be an optimist but I am having a hard time of it.

  • Report this Comment On March 30, 2010, at 8:12 PM, MKArch wrote:

    Morgan,

    I tend to lean to the political right and was upset about the budget deficits under the current administration until your recent article pointed out that it's mostly due to the lack of tax revenues in part due to stimulus tax cuts that my political persuasion advocates.

    While I have strong opinions I believe the facts are the facts and if the facts are deficits are largely not of the current administrations doing so be it. I guess that's a long way of saying I don't always disagree with you and I'm willing to change my opinion when the facts don't support it. I just don't think it's different this time and like to debate arguments that it is. But we shall see soon enough.

  • Report this Comment On March 30, 2010, at 8:38 PM, boxxer55 wrote:

    Upon review, I see I wasn't entirely clear on a couple of points.

    Stabilized or declining dual income families (due to end of trend of more women entering workforce) means that one engine of increased prices is being withdrawn. Result - less money available to purchase homes, lower ownership percentages and/or lower price families can afford to pay. All translate into lower housing prices.

    Tighter lending standards means fewer families can qualify to buy. Result - lower housing prices.

    Demographics - the next BIG generation - the so-called "echo-boom" won't be entering their big earning and home purchasing years for a bit more than a decade. Obviously there will be some buyers, just not enough of them.

    The boomer question has been discussed a ton in a lot of forums, but to just hit it ONE more time. As they retire, at a minimum they stop putting money into their retirement accounts. At worst, they start withdrawing it at an accelerating rate. Again - without sufficient high earners behind them to buy those (shares? homes? other?), the demand falls and the prices fall.

    If this is stating (re-stating) the obvious, please forgive the clarifications.

    As far as predictions of price declines, inflation without price appreciation has the same affect as falling prices. So, in an inflationary environment (falling value of the dollar) - prices don't have to fall to make them more affordable. That is what we saw in the early 1980's - some price decreases but affordability was driven more by inflation.... So discussion of price declines should be in terms of affordability instead of absolute prices.

    Again - looking for reasons to be optimistic!!!!

  • Report this Comment On March 30, 2010, at 9:49 PM, harbingerj wrote:

    Good article and good points MK and boxxer, my bottom line is this is more downward pressure on housing whose numbers (new starts) came in less than expected today.

  • Report this Comment On March 30, 2010, at 10:18 PM, akutach wrote:

    MKArch,

    I don't understand your assertion that 30% drop has relative to a few years ago at the same rates has offset the impending rise in rates. It seems to presume that housing was only 10-15% overpriced to begin with. That may be the case in certain areas, but there are still big parts in my area (mainly nice areas in the SF Bay peninsula) that are still overpriced by most metrics.

    Significantly rising rates in the current context of reduced sales rates and flat(tish) market could trigger a drop given that other stimuli will be dropped at the same time. True, the impact of interest rates on prices is somewhat muted by the tax rebate on mortgage interest for the upper half of the market, and as TMF Housel has pointed out in some of his articles, the direct tax rebates are of dubious impact toward market support. However, higher interest rates are not likely going to drive demand up, and there's plenty of pent up supply.

  • Report this Comment On March 30, 2010, at 10:19 PM, bigcat1969 wrote:

    Good writeup and good responses. Is it possible that another branch of the Federal Government (wink, wink) will step in with more cash if this winding down of the 1.25 trillion causes severe problems in the mortgage / housing markets?

  • Report this Comment On March 31, 2010, at 12:43 AM, jesse2159 wrote:

    There is only one positive way to know if the Fed's actions tomorrow will work or not. Let them do it and we'll see. It can always be reversed if it leads to a financial disaster.

  • Report this Comment On March 31, 2010, at 2:40 PM, Joeinthehouse wrote:

    Oh my, disaster, we are all ruined. What a bunch of BS. For free marketers, I sure see some thinking that makes me feel that some of you want a disaster.

    If the interest rates rise up, the prices will go down. Doh. And rates rising 2-3%. So you are saying the banks want to add to their housing inventory to cash in on excessive interest charges that they won't receive??

    None of this makes sense.

  • Report this Comment On March 31, 2010, at 2:41 PM, Joeinthehouse wrote:

    Oh my, disaster, we are all ruined. What a bunch of BS. For free marketers, I sure see some thinking that makes me feel that some of you want a disaster.

    If the interest rates rise up, the prices will go down. Doh. And rates rising 2-3%. So you are saying the banks want to add to their housing inventory to cash in on excessive interest charges that they won't receive??

    None of this makes sense.

  • Report this Comment On April 01, 2010, at 6:07 PM, plange01 wrote:

    for all the talk the problems in real estate have not even started.already there is strong signs of obama's ridiculous healthcare plan costing millions of more jobs.everyone who voted for obama needs to look in a mirror and say the words..I WAS A FOOL!!!

  • Report this Comment On April 01, 2010, at 6:57 PM, bigcat1969 wrote:

    Cool Motley Fool is going is going to step in instead of another government branch.

    ( http://www.fool.com/investing/general/a-letter-from-david-an... )

    Since this makes them a branch of the shadow government, I was right in my forecast. This rarely happens as anyone who has ever read anything I write can attest. Go Bulls on this Foolish day.

    Note to self : Don't double post!

  • Report this Comment On April 02, 2010, at 10:01 AM, jamesreidy wrote:

    The best part about that article (A Letter from David...) was the Hooters cocktail napkin. If there was ever any doubt the article was in jest (and I don't think there was ever any doubt) that sealed it.

    Bravo David, Fool on.

  • Report this Comment On April 02, 2010, at 10:42 AM, Intrepid11 wrote:

    It will not just be housing prices that are affected, housing activity is very likely to decline, i.e. potential buyers, used to low and hyper-attractive interest rates, may simply withdraw from the market. The economy and the country are not yet out of the woods created by years of artificially and deliberately low interest rates and utter lack of regulation and oversight of lending abuses and fraud encouraged, in fact,engineered by eight years of Cheney-Bush leadership.

  • Report this Comment On April 02, 2010, at 10:49 AM, chopper106 wrote:

    All these predictions. The proper variables to use are: who caused them, and who is now in charge? Some very different estimates derive when those variables are taken into account.

    The ultimate "fact" is that people are very greedy and act in selfish self interest. Despite the theoretical "market" that regulates things, it does not do so without destruction spread around.

    So let's go for (horrors!) intervention and regulation from that hated entity called government, to help curb the actions of sharks and other predators.

  • Report this Comment On April 02, 2010, at 12:05 PM, frosty77 wrote:

    Rambling post...apologies...

    My wife and I are in the process of buying a home and just had a contract fall through due to the appraisal coming in way below the contract price, and the sellers refused to budge. In this market there's no way I'm covering the difference in cash (it would have been 5 figures and 5% of the price)...and we're already insistent on putting at least 20% down on any house we buy, so I also have to consider my pocketbook.

    So even now it's a really tough market out there, not just for sellers, but for the buyers who must deal with sellers who either won't accept reality or simply cannot afford to meet the market without short selling.

    We are primarily buying because we WANT to own, not due to any investment reasons, but I have my limits. I am this close to pulling the plug and continuing to rent. Throughout our house hunt, I've been looking at chart after chart, reading story after story, and the sense that housing market is about to take another dive has been overwhelming.

    With this news of the end of Fed purchases of mortgage backed securities, on top of the impending end of the $8000 credit...if we don't have a have a home under contract by the end of this month, we're going to quit trying, and I will sleep soundly with the decision.

    If no cushion is provided, I truly believe the housing market could absolutely plummet regardless of any improvement in other economic areas. This would begin in May, but won't be apparent immediately as April contracts will be closing into the summer. In fact, there may even be some false hope generated by this, when people mis-interpret post-credit closings as proof of market strength, and disregarding that those contracts were actually signed in April. That's what happened with the November contracts that got signed prior to the extension...false hopes of a stable market.

    Let's not forget that while the housing market got to where it was due to a witches brew of conditions, one of the key ingredients was obviously, and yet curiously less-mentioned as of late, the highly speculative conditions in the housing market (largely created by a mass migration from the dotcom bubble collapse) that are unlikely to return anytime in the forseeable future, and for which we still have NOT fully corrected. On top of that, there was the collusion between appraisors and agents/mortgage brokers that is now impossible due to the HVCC (Home Valuation Code of Conduct) rules, and what happened to our contract is a typical example of the impact that has had. We've gone from a hot speculative and corrupted market to a puritanically conservative one, and that's not changing anytime soon, nor should it.

    As such, we're at a point now where sellers cannot believe things could get worse, but the reality is that conditions remain such that many prospective buyers still cannot buy their properties even if they wanted to. Throw rising interest rates and the death of the $8K credit into the mix, and it isn't pretty.

    Could it be possible that a total stagnation of the housing market may be inevitable once foreclosure inventories dry up?

    I think the overall economy will improve before much longer, but the housing market won't be invited to the party.

  • Report this Comment On April 02, 2010, at 12:14 PM, aptosjoe wrote:

    The blame game is fun and I enjoy it as much as anyone, but it isn't very productive for problem solving. And while the focus on housing afortability is interesting, I think we need to look at the fundamentals of supply/demand. Hugh over supply from foreclosures and madcap over building coupled with a declining US birthrate (I saw a 1.1 figure not long ago) will result in declining prices for existing homes for the next several decades. This will also pressure builders to produce lower sq footage new homes (already happening) and higher density projects. This should all result in an industry wide shrinkage with a ripple effect throughout the general economy. In effect a prolonged period of slow or zero growth. I wouldn't buy housing stocks or related retail stocks. I would however open the borders and hope somebody comes in to rent/buy all the vacant houses and fill the healthcare job openings.

  • Report this Comment On April 02, 2010, at 1:13 PM, jfrankh57 wrote:

    MKArcher Says: While I have strong opinions I believe the facts are the facts and if the facts are deficits are largely not of the current administrations doing so be it. I guess that's a long way of saying I don't always disagree with you and I'm willing to change my opinion when the facts don't support it. I just don't think it's different this time and like to debate arguments that it is. But we shall see soon enough

    Where is the increased tax revenue now that the non-conservative party is in (and has been in since Bush's 2nd term election in 2006 and consolidated in 2008) power? Just because the democrats have a lock on the executive branch now as well as the legislative branch doesn't mean the supposedly "conservative republicans" were in power during the waning years of Bush's last term. Heck, he was a progressive even if he claimed to be conservative. The idea that all people should be equal does not take into account the effort one is willling to put into his/her work. The previous administration did start the ball rolling on wealth redistribution, but it has been accelerated by the current administration.

  • Report this Comment On April 02, 2010, at 2:07 PM, sean0sullivan wrote:

    Personally, I would love to see housing prices drop further. I am currently renting an apartment and have a fair chunk saved up for a down payment. But where I live (Seattle) it's tough to find a cheaper home with a location where my wife and I would like to be. If higher interest rates without inflation can push prices down further, I for one will be happy.

    My friends and family who own homes may not be so happy, but I think about homes how I do about stocks -- "great assets at reasonable or discounted prices for the long run".

  • Report this Comment On April 02, 2010, at 4:14 PM, MoneyGrows100 wrote:

    Wow! Thank you for pointing out that housing prices were driven up in part by the financial chicanery that took place during the boom years of free money. The Fed's plan to support the MBS market was ill-conceived in the first place (and that's just my opinion). Values in real estate have always fluctuated with income and jobs. Counting on artificial props for sustainable growth will only get us (investors) in trouble. By the Fed artificially supporting the housing market we are just prolonging the market adjustment - no one knows how long the fed can keep doing this... and I doubt very much that they will be able to sustain the market through the cycle. Ouch - scary, inconvenient, but true.

  • Report this Comment On April 05, 2010, at 2:44 PM, ziq wrote:

    I just took out max cash advances on all my credit cards to get in on this. Of course, if this doesn't pan out, no way I'm going to be able to make minimum payments and keep up with my mortgage. But, you guys haven't steered me wrong yet. Can I just Fedex overnight you the cash?

  • Report this Comment On April 05, 2010, at 2:47 PM, ziq wrote:

    I just took out max cash advances on all my credit cards to get in on this. Of course if this doesn't pan out I'm screwed. No way I could keep up with minimum payments and my mortgage. But you guys haven't steered me wrong once so far. MF rocks. I also plan on selling my entire MDP. Can I just Fedex you the cash?

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