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The Fed Will Throw The Housing Market Under The Bus To Kill Inflation

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The Fed will throw the housing market under the bus in order to stay ahead of the inflationary curve

A spike in mortgage interest rates that's putting new pressure on homeowners with costly subprime loans may also bring an unexpected boost to the market as buyers rush to beat more rate hikes.

“Some people have been on the sidelines waiting for rates to start rising or waiting for home prices to drop,” said Keitaro Matsuda, Union Bank of California senior economist. “People who have the means to be in the housing market but have chosen not to, those numbers may prompt them to re-enter the market.”

While some buyers and sellers remain enthusiastic, Jack Guttentag, author of “The Mortgage Encyclopedia,” says there's no way to sugarcoat a rise in interest rates. “If interest rates go up, it means mortgage payments are higher and it decreases affordability across the board,” he said. “We may have a special kind of problem . . . because so many people took out high-ratio loans, loans with low or no down payments in 2005 and 2006. They are going to be resetting at higher rates.”

Doug Duncan, chief economist for the Mortgage Bankers Association, expects rates to peak near 7 percent by the end of the year.

If rates rise further, hardest hit may be those who are in subprime mortgages and who want to refinance to less volatile loans. Already, a slumping home market has boosted the number of foreclosures.

University of San Diego economist Alan Gin said he has given up hope that the Federal Reserve will come to the housing industry's rescue by cutting interest rates this year. Laguna Beach-based mortgage broker Steve Dexter agrees. Government concerns about inflation outweigh fears about how a slowing housing market will harm the economy, he said.

“The Fed will throw the housing market under the bus in order to stay ahead of the inflationary curve,” Dexter said. “If they let inflation get out of control, it is damaging for the economy as a whole.”

Shame Alan Gin doesn't live over here as he would have seen how our 'Fed' came to the housing industry's rescue by cutting rates in 2005. The £1m question is; Will 'our' Fed be brave enough to throw housing market under the bus in order to stay ahead of inflationary curve or save the housing market and sod the rest?

I guess Mr Merv will either have to call a friend (Mr Brown) or ask the audience (Property experts - Phil & Kirstie)

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The Fed will throw the housing market under the bus in order to stay ahead of the inflationary curve

Shame Alan Gin doesn't live over here as he would have seen how our 'Fed' came to the housing industry's rescue by cutting rates in 2005. The £1m question is; Will 'our' Fed be brave enough to throw housing market under the bus in order to stay ahead of inflationary curve or save the housing market and sod the rest?

I guess Mr Merv will either have to call a friend (Mr Brown) or ask the audience (Property experts - Phil & Kirstie)

Al Gin was a leading bull when I was living in San Diego.

But I think he is right about the Fed. The bubbles that are bursting are confined to those areas where bubbles formed--not every region in the US. I daresay the entire country will come through GC2 with an average drop of 20% from the peak. However, in the UK we are equivalent in bubble terms to Southern California so we can expect drops of between 40-60%.

The US can afford a 20% HPC that is why Ben will continue hiking the rates if he has to. Merv will have to hike regardless as Crash Gordon has laid the foundation for hyper-inflation with his accommodative IR policy, out of control money supply, looses credit, massive expansion of government employees, export-wilting exchange rate and the biggest housing bubble in the world.

Crash Gordon's mistake was in not realising that inflation, in any form, is a negative for the economy in the long term. His IR cut in August 2005 highlights his lack of understanding in this area. He is in no position to crash the housing market voluntarily as his entire legacy as a "miracle chancellor" stands or falls on the price of houses.

Edited by Realistbear

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Brown will sacrifice the nurses to "keep inflation and interest rates down", he makes out like that is ok??

Sadly you are right but I have a feeling that he won't have his cake & eat it too. His spin & miracle economy has gone too far and it will be his undoing.

Merv will have to hike regardless

I am sure he will, but the problem is he is not hiking enough nor quick enough. He has a 'wait & see' policy that clearly doesn't work. 0.25% rate hike now and then just won't do it.

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Don't worry, we're the world leader in derivitives trading and hedge funds.

:o:o:o:o

Yeah right! There will be nothing but empty crisp packets tumbling through the streets, broken windows and faded To Let signs flapping in the wind across certain parts of the City and West End when the whole hedge fund/private equity thing blows wide open.

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The Fed will throw the housing market under the bus in order to stay ahead of the inflationary curve

Curious. As the Fed can do nothing about the housing market. The bulk of loans are linked to 30yr treasuries - which have risen 30% in 2 years and will rise a further 20% this summer.

In any case "to stay ahead of the inflationary curve" - stay ahead. My 4rse. They are so far behind its like Pavarotti running against Colin Jackson. I will remind you gold is up 250% in 5 or so years while the $ is down 30% on a trade weighted basis.

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