Nasdaq: Interest rates and housing boom
Just a thought, Fed Moved too far on the way down!!!
When the fed lowered the fed funds rate to 1% they temperarily may have no only delayed the inevitable but created a bigger problem. The lower interest rates allowed the debt heavy consumer in the US to cashout at low interest rates on their mortgages. Thus inturn created liquidity and consumer spending, which in hindsight was just a smokescreen. Most look at the increase in Housing prices as real money. Unfortunately, the higher prices have lead to the avg american holding more debt, house included.
Over 35% of mortgages are on adjustable rates with high loan to values. Now that the housing market is coming down there is no room to cashout and most will be sitting on a negative equtiy with an adjustable mortgage.
Of course this isnt all gloom in doom. The fact that real estate is going down will elimate one investment vehicle from the equation. The others left are stocks, bonds, money market, cash.
The further the financial markets decline the more attractive they will become. Although if money markets are paying upwards of 5-7% it maybe enough to keep most on the sideline until more damage is done.
When the fed lowered the fed funds rate to 1% they temperarily may have no only delayed the inevitable but created a bigger problem. The lower interest rates allowed the debt heavy consumer in the US to cashout at low interest rates on their mortgages. Thus inturn created liquidity and consumer spending, which in hindsight was just a smokescreen. Most look at the increase in Housing prices as real money. Unfortunately, the higher prices have lead to the avg american holding more debt, house included.
Over 35% of mortgages are on adjustable rates with high loan to values. Now that the housing market is coming down there is no room to cashout and most will be sitting on a negative equtiy with an adjustable mortgage.
Of course this isnt all gloom in doom. The fact that real estate is going down will elimate one investment vehicle from the equation. The others left are stocks, bonds, money market, cash.
The further the financial markets decline the more attractive they will become. Although if money markets are paying upwards of 5-7% it maybe enough to keep most on the sideline until more damage is done.
posted by JV at 8:29 PM
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