When This Chart Gets to $1,250,000,000,000 – Mortgage Rates Are Going to Go Up….

So what does this chart represent?   The Fed’s purchase of mortgage backed securities.   They committed last spring to spending $1.25 Trillion worth of our money buying mortgage backed securities and originally planned on doing it by November.    They then decided to “ease” out of things and take until March to do it.

Rates at that point dropped by .375% overnight and have since dropped further.    I’ve read a variety of analysts predictions that rates will go up by anywhere from .25 to 1.25% when the Fed steps out of the market.   My personal opinion is that we aren’t going to see a dramatic reversal, but rather a slow increase once it becomes evidence that they aren’t going to extend it out further than they already have.

Tomorrow’s Federal Reserve Open Market Committee meeting (which is held behind closed doors) will potentially give some insight into the question of whether, how long, how far they might extend or shorten their market stimulus.   My prediction is that we won’t see them make any dramatic moves but reaffirm that they’ll be done in March.    I also don’t anticipate we’ll see the effects of the market dealing with a huge buyer leaving the marketplace until well after the New Year when we get closer to them really being finished.

Stay tuned and if I can help, let me know.

Tom Vanderwell

Think our government isn’t borrowing a lot of money?

A couple of important things to notee about this chart from Calculated Risk:

• From September 2008 to December 2008, the Fed spent over $1 Trillion (that’s $1,000,000,000,000) keeping the markets from what some say would have been total meltdown.
• The only “portion” of their spending that has significantly increased is their purchase of Agency and MBS.   That means it’s money that they have spent keeping Fannie and Freddie going.  

So ask yourself, if the government has spent that much in buying mortgage backed securities from Fannie and Freddie, what do you think is going to happen when they stop?

I’ll give you a hint……

Rates aren’t going down.

Tom

Fannie Mae, Freddie Mac, MBS

Why does a Federal Reserve Exit Strategy matter to the Housing Market?

You might think that it’s quite an esoteric and ethereal (how are those for big words) discussion, but there is some pretty substantial reasons why it matters to the housing market.

Check out what I wrote over at my other project, “Straight Talk – The Bigger Picture,” for some thoughts on how the Fed matters to the housing market.

Then call me at (616) 209-8811 and let’s talk about it.

Tom Vanderwell

The Fed, Exit Strategy, Tom Vanderwell, Housing

Money Management at the Government Level

This is truly scary…..

Federal Reserve

Fed sharply lowers forecasts, hints of rate cut – Nov. 19, 2008

WASHINGTON (AP) — The Federal Reserve on Wednesday sharply lowered its projections for economic activity this year and next, and signaled that additional interest rate reductions may be needed to help combat the worst financial crisis to jolt the country in more than a half-century.

With the economy forecast to lose traction, or even jolt into reverse, unemployment will move higher, the Fed predicted.

Facing the likelihood of “significant weakness” in the economy, some Fed officials suggested “additional policy easing could well be appropriate at future meetings,” according to documents from the Fed’s most recent closed-door deliberations on interest rate policy at the end of October.

Fed sharply lowers forecasts, hints of rate cut – Nov. 19, 2008.

Sorry, but when I read this report of the Fed’s Minutes, I had two main thoughts:

1. I wonder what their thoughts are about the economy right now, including the GM/auto industry mess.
2. I wonder what they are going to do when we get down to a 0% Fed Funds Rate.

No answers for those tonight, too much to do and not enough time to write it all tonight anyway.

More later.

Tom Vanderwell

Fed’s Yellen: “A Fog of Confusion” : HousingWire

Federal Reserve Bank of San Francisco president Janet Yellen suggested on Tuesday evening that the U.S. economy has fallen into a broad recession, and said that prospects for recovery rest on restoring some semblance of normal functioning to the nation’s financial markets.

via Fed’s Yellen: “A Fog of Confusion” : HousingWire

You know, one thing that all of these speakers don’t mention is their definition of normal.   By “normal functioning” does Janet Yellen mean the loose credit to anyone who could fog a mirror days?

Normal is changing folks and we aren’t going to go back to the way things were.   We need to define a new normal and a new normal for the credit markets is going to define a new normal for the rest of the economy.

Tom Vanderwell