Housing Bubble Bursting?

[Randolph Kinney]

FED cut won't save the ARM resets

Fed's rate cut won't help consumers who need it the most

CHICAGO (MarketWatch) -- For debt-weary consumers, the Federal Reserve's decision to shave interest rates on Tuesday is welcome news for their stock holdings but won't do much for their mortgage payments or savings accounts.

Here's what consumers can expect:

• If a consumer is paying 8.25% interest on a $100,000 loan that is based on the prime rate -- such as a home-equity line -- a rate reset to 7.75% is likely. That's the difference of about $500 a year, or roughly $41.66 a month in interest charges.
• Resets on some adjustable-rate mortgages will be slightly better. Many ARM interest rates are based on an average of Treasury note yields coupled with a fixed margin, now at about 2.75 percentage points. At Tuesday's 10-year yield of 4.49%, the rate is 7.24%. In July, it was at 7.77%. That makes the monthly payment on a $200,000 mortgage $1,363, about $73 less than it was in July. But Treasurys could head even lower following the Fed action.
• Rates on credit cards, which have taken on a bigger role in consumer financing in recent months, are likely to dip a bit too, lowering minimum monthly payments.
• Savings-deposit rates will go down, meaning that your bank balances won't appreciate at the same rates you've seen all year.
• Ditto on money market rates, hurting those on fixed incomes -- generally the elderly -- who rely on cash generated from such safe investments.
• Interest rates on new loans for cars will fall, though it won't have any effect on loans already in place. But Brian Bethune, the U.S. economist with Global Insight, urges consumers to wait until contract negotiations between autoworkers and their bosses are done this month. "They could pull out all the stops," he said about automakers' desire to unload inventory. And if the Fed lowers rates again next month, all the better.

Not surprisingly, there's a caveat to all this: The Fed's cut in interest rates comes at a time when prices on energy and commodities are rising. The cut also could stimulate inflation, sending prices on everything higher.

 

[Couch Potato]

The cut also could stimulate inflation, sending prices on everything higher.

Which is the only way to stop the slide in prices of housing.

 

[Pamela Biggers]

"The cut also could stimulate inflation, sending prices on everything higher."

Great. Help those that took out an adjustable rate mortgage they couldn't afford and screw everyone else with inflation. Good job.

 

[Dee Dee]

Great. Help those that took out an adjustable rate mortgage they couldn't afford and screw everyone else with inflation. Good job.

Glad to know that others feel the same way that I do.

 

[Austin]

Politically Correct Economic Policy

As I have stated many times before; economic policy is all about politics.

Here is the way I see this rate cut in politically viable terms: The Fed rate cut was politically motivated. The correct action would have been to raise rates and let the market achieve equilibrium. The end result of the rate cuts will be inflation and the politically correct action for that will be higher interest rates.

The long term result is the same, higher rates, but the method of getting there is more politically viable. The trade off is a prolonged readjustment period. Smart money knows how to deal with this situation. Send cash to Europe is one good solution. It is a win win situation. Higher rates and lowering dollar. This is just another example of how to tax the poor and be politically correct. They end up paying for it through higher prices.

 

[Randolph Kinney]

Housing is doomed in spite of rate cut

Analyst says Fed rate cut not likely to help housing fundamentals

BOSTON (MarketWatch) -- Although Tuesday's Federal Reserve rate cut may soothe the market's psyche as evidenced by stocks' rally, the event will have little if any impact on the main problems in the housing market such as the inventory glut, falling home prices, a difficult mortgage market and rising foreclosures, according to a Morgan Stanley analyst.

He said he remains cautious on home-builder stocks "and would look to short the group should it trade meaningfully higher in the absence of further rate cuts."

As everyone noted, cheap money and credit invites inflation and bubbles.

Here's to more of the hair of the dog that bit ya! :new_all_coholic:

 

[Randolph Kinney]

Housing problem solved

Regulator allows Fannie, Freddie to grow portfolios

WASHINGTON (MarketWatch) -- The agency that oversees mortgage-buyers Fannie Mae and Freddie Mac is allowing the companies to modestly increase their mortgage portfolios, in a move the agency says will help subprime-mortgage buyers avoid foreclosures. The Office of Federal Housing Enterprise Oversight is allowing Fannie Mae to grow its portfolio of loans by 0.5% per quarter, or by 2% annually.

Now all they need to is raise the max mortgage to $600,000 to goose the credit availability.

 

[Randolph Kinney]

Wonder if subprime borrowers vote, which party?

Subprime Borrowers to Lose Homes at Record Pace as Mortgage Rates Increase

As many as half of the 450,000 subprime borrowers whose mortgage payments increase in the next three months may lose their homes because they can't sell, refinance or qualify for help from the U.S. government.

 

[Randolph Kinney]

Betting against the FED

Treasury 10-Year Note Falls the Most in Six Weeks on Outlook for Inflation

Treasury 10-year notes fell the most in six weeks as investors speculated inflation will accelerate after the Federal Reserve cut interest rates by a half-percentage point.

 

[Randolph Kinney]

FED sees more mortgage turmoil on the way

Fed chief Bernanke predicts further mortgage turmoil

WASHINGTON (MarketWatch) -- More delinquencies and foreclosures can be expected in the subprime, adjustable-rate mortgage market as borrowers face interest-rate resets, Federal Reserve Chairman Ben Bernanke said Thursday.

"With house prices still soft and many borrowers of recent-vintage subprime ARMs still facing their first interest-rate resets, delinquencies and foreclosure initiations in this class of mortgages are likely to rise further," Bernanke said in his testimony. He said it's hard to predict how many foreclosures are on the way.

By some estimates, however, about two million loans are expected to reset to higher rates in the next two years. Defaults are expected to follow, Congress and the White House have floated a slew of proposals to stem the damage.