Federal Reserve to Ease off In
Housing Recovery
From the Boston Globe:
Fed will slow efforts to aid Housing Sector
WASHINGTON – The Federal Reserve will slow its purchases of mortgage securities, seeking to avoid disrupting the housing market as an economic recovery takes hold.
“The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010,’’ the Federal Open Market Committee said yesterday in a statement after meeting in Washington.
Home Values Rescue
The 1.45 Trillion dollar program to keep interest rates low to help revive the housing market was set to expire at the end of the year. Due to the belief that the economy is in recovery, the Fed will slow down in its purchase of mortgage securities with the hope that other investors will step in and take over.
The Fed’s “primary goal is to avoid a shock to the market by suddenly shutting the programs down all at once,’’ said Christopher Low, at FTN Financial in New York. As the Fed eases out of purchasing mortgage securities, “they’re hoping other buyers will step in to avoid a sudden increase in mortgage rates.’’
While the National Association of Realtors® is lobbying for an extension / expansion of the First Time Homebuyers Tax Credit as buyers and their real estate agents scramble to meet the deadline, the Federal Reserve sees signs of recovery and there is a very real chance that interest rates could be rising by the first quarter of 2010.
Rates for 30-year fixed home loans averaged 5.04 percent in the week ended Sept. 17. A sudden end to the Fed’s purchases might push up rates one-half to one point, said Peter Hooper, chief economist at Deutsche Bank Securities. Reducing weekly purchases and stretching them beyond the end of the year will have a more muted effect, but still push rates up at least a quarter-point, he said.
If the First Time Homebuyers Tax credit is not extended and the Federal Reserve continues with its plan and interest rates rise next year.. will this combination hurt Home Values?
And herein lies the problem with
Government programs when it comes
to real estate.
What may be a good program for Las Vegas, New Mexico … may be a terrible one for Las Vegas, Nevada.
Much like the exotic loan products that helped create the real estate bubble and really whack out home values in speculation states such as Florida, Arizona and Nevada… Blanket Programs such as tax credits and purchasing mortgage securities to the tune of over $1.45 Trillion dollars are unsustainable when it’s borrowed money.
On one hand, it slows down the free fall of home prices and has helped the Las Vegas real estate market tremendously… on the other hand it may just be delaying a further decrease in home values when the programs are removed.
Notice of Trustees Sales in Clark County, NV through July of 2009
For Las Vegas real estate, home values have already gone down to pre real estate bubble values so these programs may just be creating a mini bubble. Let’s face it… the programs are not working for current Las Vegas Home owners that are completely underwater on their mortgages and are more beneficial for the Banks in getting rid of their Real Estate Owned (REO) properties.
Cash Buyers that currently own real estate and can’t take advantage of the current programs may want to wait until they end. I get calls every day for my Las Vegas short sale listings from buyers real estate agents asking where they are in the process and if they have a chance of closing by 11/30/09 (tax credit deadline day). It’s very obvious that a lot of activity going on right now is from buyers scrambling to purchase a Las Vegas home before the deadline.
For other real estate markets across the country… these programs are helping actual homeowners from keeping their home values from falling further and letting them get out while they can.
As they say… Real Estate is local but lending is global. What may be good for one real estate market… may cause problems for another and time will only tell if real estate markets are really heading to some form of recovery/normalcy when the subsidies end.
Paul Francis, CRS
Prudential Americana Group – Realtors®
Las Vegas Real Estate
702.592.3058
November 1, 2009 at 7:55 pm
[...] unsustainable Government subsidies in place such as the $8,000 first time homebuyers tax credit and purchasing of mortgage backed securities to artificially lower interest rates. Yes.. the Federal Reserve will need to eventually raise interest rates to take back in all of that [...]