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gruffydd

Bernanke's Challenge Is To Break The Housing Boom

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Bernanke's challenge is to break the housing boom - By David Hale (good friend of Bernanke)

FT.com 02:17 26-Jan-06 (S)

Has anyone access to this - I don't subscribe - can you tell us what it's all about?

Edited by gruffydd

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Bernanke's challenge is to break the housing boom

FT.com 02:17 26-Jan-06 (S)

Has anyone access to this - I don't subscribe - can you tell us what it's all about?

It's a sad day when America is vastly more forward thinking than the UK. I'm spending a month over there in April. It will be interesting to feel the mood.

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It's a sad day when America is vastly more forward thinking than the UK. I'm spending a month over there in April. It will be interesting to feel the mood.

https://registration.ft.com/registration/ba...00779e2340.html

Here is part of it:

There is little doubt that house prices have become one of the dominant issues in the global economic outlook. The US Federal Reserve and the Reserve Bank of New Zealand are raising interest rates in order to curb housing booms. Australia and Britain have suspended interest rate rises because their housing inflation slowed dramatically more than one year ago. South Africa will probably raise interest rates later this year in part because housing inflation is driving rapid growth of consumer borrowing and expansion of the country's current account deficit.
Housing inflation is likely to be the big challenge confronting Ben Bernanke when he moves to the Federal Reserve next week. US house prices have increased by more than 60 per cent during the past five years and were still increasing at a 13-14 per cent annual rate last quarter. The market value of residential real estate in the US is now equal to nearly 200 per cent of personal disposal income, compared with 160 per cent during the early 1990s. Mortgage-related assets are now equal to 61 per cent of bank credit compared with less than 50 per cent 10 years ago and 25 per cent during the 1970s.

But now, America is going to be asking a lot more of the foreign investor at precisely the moment when the Fed is transitioning from Greenspan to Bernanke. As the Maestro leaves the building, the hard-won aura of foreign confidence that surrounds him could be quick to follow. Like the chairmen who preceded him, Bernanke could soon find himself dealing with a confidence crisis in the financial markets. And suddenly, the inflation targeter will be staring at a far more intractable set of problems than his research and training prepared him for. Bernanke could be faced with a dollar crisis and the related need on the part of foreign investors to seek compensation for taking currency risk. That compensation invariably spells higher interest rates — the last thing America’s housing bubble and overly-indebted consumer needs.

Edited by Realistbear

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http://72.14.203.104/search?q=cache:C-X4ui...sing+boom&hl=en

A great page on the US situation - it mentions the FT atricle by David Hale

An extract from the article..........

"Mortgage-related assets are now equal to 61 per cent of bank credit compared with less than 50 per cent 10 years ago and 25 per cent during the 1970s.

The US housing market now has forms of mortgage lending that have not existed since the 1920s. In California, two-thirds of new mortgage loans now require interest payments only. Such forms of lending were common in the century before 1930 but declined sharply after the creation of Fannie Mae, the mortgage finance group, during the Great Depression. Alan Greenspan, the outgoing Fed chairman, produced a report in September estimating that households have been extracting $600bn-$700bn (€489bn-€570bn) of real estate gains from their homes through mortgage refinancing activity."

Still haven't managed to access the whole article.........

Edited by gruffydd

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http://72.14.203.104/search?q=cache:C-X4ui...sing+boom&hl=en

A great page on the US situation - it mentions the FT atricle by David Hale

"Mortgage-related assets are now equal to 61 per cent of bank credit compared with less than 50 per cent 10 years ago and 25 per cent during the 1970s.

The US housing market now has forms of mortgage lending that have not existed since the 1920s. In California, two-thirds of new mortgage loans now require interest payments only. Such forms of lending were common in the century before 1930 but declined sharply after the creation of Fannie Mae, the mortgage finance group, during the Great Depression. Alan Greenspan, the outgoing Fed chairman, produced a report in September estimating that households have been extracting $600bn-$700bn (€489bn-€570bn) of real estate gains from their homes through mortgage refinancing activity."

With asset bubbles of this dimension, could we be facing another 1929 world crash that lasted 10 years?

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OR MAYBE... not to break it

Which is a tougher challenge. Tougher as each day goes by,

and as the debt mountains grow still higher

I think the challenge is to break it,without making a mess anywhere else.

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David Hale, who wrote the article, is a good friend of Bernanke!!!!!!!!!!!!!!

What is the overall tone and conclusion of the article?

Is it suggesting that he is going to go ahead and pop the bubble in an attempt to sort out the debt issues?

Some people here were speculating about this and that popping it would be the best thing to do, as then, the US would have a few years of hardship that would be mostly attibutable to Greenspan, then Bernanke could get on and leave his legacy.

Otherwise, the longer he leaves it, the inevitable pay back will be more attributal to him alone.

He must know that he is inheriting a load of grief from maxed out Al.

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I think Hale has previously argued that interest rates will have to be raised / kept at a high level between now and late 2007 to control house prices.

Found this on the internet and think it all refers to what is written in the article, but not sure - "Ben Bernanke's first job is to "break the housing boom," says David Hale in the Financial Times (paid registration required). He takes over as Federal Reserve chairman next week at a time when Americans have been borrowing like crazy -- using risky interest-only mortgages "that have not existed since the 1920s" -- to cash in on skyrocketing property prices. This can't continue, and Bernanke will have to push up interest rates until it stops."

Edited by gruffydd

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I think Hale has previously argued that interest rates will have to be raised / kept at a high level between now and late 2007 to control house prices.

Found this on the internet and think it all refers to what is written in the article, but not sure - "Ben Bernanke's first job is to "break the housing boom," says David Hale in the Financial Times (paid registration required). He takes over as Federal Reserve chairman next week at a time when Americans have been borrowing like crazy -- using risky interest-only mortgages "that have not existed since the 1920s" -- to cash in on skyrocketing property prices. This can't continue, and Bernanke will have to push up interest rates until it stops."

Thanks mate.

That would be great. US interest rates up above 5.5% would make me laugh and totally muck up Gordon and that parasite "career Civil Servant" John Gieve, who has no experience and even less idea, but has clearly been put in place by Gordon to try and control the MPC.

Problem is, Gieve may arrive too late and they may not be able to reduce rates without major consequences.

:lol:

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using risky interest-only mortgages "that have not existed since the 1920s

Good reasons for that. The bankers created the Great Depression the last time they went down that track.

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I know there are pockets of the USA where the prices have gone mad but some places, like Seattle, appear to be really cheap; well to me anyhow. At least when you do shell out some serious wedge on a house in the States you end up with a bit of land and a sizeable house.

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I know there are pockets of the USA where the prices have gone mad but some places, like Seattle, appear to be really cheap; well to me anyhow. At least when you do shell out some serious wedge on a house in the States you end up with a bit of land and a sizeable house.

I read earlier that the average loan backed by Freddie Mac is $230k and they only go up to ~$450k until it's considered a jumbo-loan (higher risk/rates).

An average of £129k would buy you jack $hit in the UK, this country is in far more serious trouble when it comes to valuations it's just that the US market is so much larger so therefore they make up in bulk what we make up in unbelievable extremes.

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Guest Riser

The US housing market seems to be leading the UK in this cycle although even they see to be experiencing a suckers rally this Spring:

USA Housing Market Trends

...But sorriest of all is that the greatest consumer buying binge ever is starting to fade. And what it shows unequivocally is that home-equity loans, which have been one of the great springs of the growth in the consumer-driven economy -- the source, as MacroMavens' proprietor, Stephanie Pomboy, puts it, of the "marginal consumption buck" -- are going south for the first time since the last recession in 2000...

housin4.gifbarrons_consumer_20060120155213.gif

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If US Interest rates go up by 0.5 %, will the BoE be able to keep them level here or is the only way up????

Go on Bernanke - get breaking!

Edited by gruffydd

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If US Interest rates go up by 0.5 %, will the BoE be able to keep them level here or is the only way up????

Go on Bernanke - get breaking!

I don't know. When you consider the whole picture though, it seems old Mervyn made his "Nice times are ending" speech at the right time.

You would have to be mad to go out and buy now, there is just too much risk in the air and you are far better off waiting and seeing what happens, if you are lucky enough to be able to buy.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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