Quote:
Originally Posted by jp03
This is not the world you grew up in...the happenings of today are unlike anything this country has ever seen economically. There is no comparison to anything prior in my opinion. Interest rates have remained low for a reason. It would be suicide on the housing industry to drive them up right now. Oh, and the days when you "lost out" when you didn't buy...curious, how much inventory was out there in "those days"??? Like today? Trust me...if you don't buy right now and wait, you won't be missing out on damn thing, except not having to watch your newly bought house depreciate when the stimulus ends..
In the "old days" did the government have to "entice" buyers with 8,000 dollar stimuluses????? This is a NEW situation.
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time will tell my friend.. good luck predicting....
i would hope you have a understanding of how rates work and who controls long term rates so you know they have no control over this for the most part. your quote suggests "Interest rates have remained low for a reason. It would be suicide on the housing industry to drive them up right now." investors dont want to loan money out to buy mortgage back securities with all their risks at these low rates.
as thin as this market is right now because of lack of interest the fed still had to buy in one afternoon a trillion dollars in securities to keep investors from running with the ball and raising them just the other afternoon.
its becoming very hard for the fed to mannipulate these rates and if more investors participate it will be impossible.
I had posted this in another thread here but for those who dont have a clear understanding of our rate system hopefully its helpful
there are 2 sets of rates, short term and long term
both sets of rates are controlled by investors all over the world. they do this by bidding for our bonds every moment of every day the markets are open.
the fed signals to investors that they are happy or not happy with where rates are bid by whats called the discount rate and the feds fund rate.
the fed funds rate is the rate banks can borrow from each other , the discount rate is the rate banks can borrow from the fed. since borrowing from the fed is a sign of having to run back to papa for money most banks prefer to get their money from each other or investors. going to the fed window is looked at as a sign of weakness or failure.
short term rates are linked to credit cards, the prime rate, buisness loans etc and is the feds main arsenal for controlling inflation.
the fed is usually good in getting investors to follow there lead here and short term rates usually track the feds set rates.
afterall a bank isnt going to borrow money from you or investors at much more then they can go to each other or to papa for.
the fed has great control over short term rates as when the fed announces a cut every bank is expected to cut their short term loan rates.
the fed has little control over long rates, the ones that determine mortgage rates. they can try buying or selling long term bonds to influence things but usually they cant control things enough to win out over what the world wants., the worlds investors win almost every time. as much as they wish they can control things here the fed can not.
long term rates are mostly set by investors round the world. its based more on perception of the future then whats happening now. these rates are more a reaction to other events in the world then diectly linked to the feds short term intentions.
many times investors said to hell with what the fed wants , we know better and while the fed is trying to raise rates investors dont see the future that way. just recently before the collapse the fed was trying to get all credit markets to raise rates. in defiance the long end marched to its own drummer and bid rates down. thats in contrast to whats normal.
you normally get more for loaning money longer, but now short term rates controlled and influenced by the fed were higher then long term rates which were controlled by the worlds investors.
papa fed was most unhappy with this but there wasnt a hell of a lot they could do as investors just werent taking there cues from papa fed ..
now we have the reverse, the fed is signalling by keeping short term rates rates low that they want the long end to do the same.
once again investors have there own view of the future and are bidding rates higher.no one sees loaning money for 30 years at these low short term rates as anything they want to do or take the risk with for 30 years so they are demanding more interest to be compensated . as inflation worrys off in the future get stronger these rates are bid higher and higher.
right now investors are offering a full 30% less for a 30 year treasury then they did last december. that works out to almost demanding a full point more interest .
while investors accepted 4% last year now they want 5%
its these long term rates that spill over to the mortgage back securities that determine mortgage rates since they operate off the long end not the short term rates.
the fed is artificilly trying to manipulate those mbs securities right now to keep them from tracking the long end of the bond market.
the mbs market is many times smaller then the treasury bond markets world wide so its been a little easier for them to influnce them and try to hold them down.
as small as that mortgage back securities market is right now because of lack of interest by investors it still took the fed a trillion dollars today to artificially drive rates down while investors wanted them up.
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