It seems that they think that QE3 will push down mortgage rates, but it looks like QE2 got in the way – mortgage rates went down as soon as QE2 stopped on June 30, 2011:
It will always be a different time and place, so let’s face it, there are different parts of the puzzle now. The economy is heading downward, the hot election cycle is in full swing, there is plenty of uncertainty around the world, and mortgage rates are already about as low as they can go.
There might be some psychological boost to the real estate market if mortgage rates slip down into the low-3s. But willing buyers who venture out are going to see the same environment that we have had all year:
1. Supremely over-confident sellers trying to grab an extra 5% to 10% in price due to low inventory.
2. Listing agents who get too cocky just because they get a lot of phone calls on their new listing.
3. If you can manage to finally win a bidding war, complete your inspection and then find defects, expect that the sellers/listing agents won’t do anything for you – except rub your nose in the alleged backup offers.
4. And you end up with few other choices, other than to wait longer.
I’d like to see Ben and the boys do something about those!
Mortgage rates also fell at the end of QE1, so if the Fed really wanted rates to fall, they’d do nothing. QE just gooses the stock and commodity markets, which sucks money out of the Treasury markets, which drives up yields and therefore interest rates.
The expectation is that the stock market and oil/gold/silver will go higher. Mortgage rates will end up flat to higher. Of course since everybody has caught on maybe something different will happen. Certainly a stock market decline would come as a shock and likely result in a panic, but there’s no evidence that’s going to happen. The problem is the fed can’t fail at this point because it’s the only thing they have left to instill confidence. If they can’t prove they can drive the stock market higher with QE, we’re in big trouble.
Sellers may be looking for a premium because when they buy their next house they are going to be in competition as well and may have to pay more then they wanted.
printing works till it doesnt.
So how much less is our money worth now?
Here’s one way of figuring what money’s worth.
Last I read poverty level for a family of 4 was $22,000. So, anyone willing to buy a $2.2 million one year cd could keep his/her family off the poverty rolls for the next 365 days. Of course, next year it probably won’t be so easy.
Sean,
You’re operating with a flawed model.
QE pushes money into the markets; basically that means that the dollars people would have normally used to purchase agency debt would now purchase other yields(like treasury). That means that treasury yields fall as they rally.
QE does exactly what it’s supposed to do, both from a theoretical and practical model. The impact isn’t immediate, but it’s there.
The big question is how the FED will ever be able to unwind it’s debt position. That could take a generation or more.
Chuck
Whats money worth? A sealed can of coors (for example) maintains its intrinsic worth indefinately. How many dollars does it take to buy 100 today versus how many dollars 10 or 20 or 30 years ago? Look at house prices in terms of the number of “beer tokens” necessary for purchase.