Last week was an eventful week as the Federal Reserve officially announced its latest economic stimulus policy called “Operation Twist.” While it may have been expected, the market basically puked as stocks plunged the remainder of the week but finally stabilized on Friday. The Fed’s offer of $400 billion to help the economy as the mortgage market was seen as not enough.
Robert Shiller from Case-Shiller and Yale University, was interviewed a couple of days ago by Business Insider. He claims the Fed’s actions will not help the struggling U.S. housing market. I would agree. First of all the $400 Billion is a temporary stimulus that may help bring down rates by 1/4 to 1/2 point (we’re looking for 3.5 to 3 5/8ths mortgage rates). This will help those immediately looking to purchase a home in the next 3-9 months and it may even help some people refinance their home if they still have some equity left. However, the problems are structural in the U.S. Housing market. Besides the fact that there are a few million people behind on their mortgages, millions more have no equity and thus generally, not a lot of ability or desire to move. So, the market is going to struggle along for some time to come.
- Was Operation Twist Priced In? (FLAT) (businessinsider.com)
- Robert Shiller Talks About The Substantial Downside For Equities (businessinsider.com)
- Case-Shiller Index: Minneapolis Home Prices Decline 11.7% Year over Year – Now at 2000 Price Levels (johnmurphyreports.com)
- Fed’s “Operation Twist” Decision Paves Way for Massive Fannie Mae Freddie Mac Refinancing Plan – Bruce Krasting (johnmurphyreports.com)
- Alex Stenback on the Federal Reserve’s New Stimulus – “Operation Twist” (johnmurphyreports.com)