A headline from Reuters yesterday stated:
Treasury may use Fannie, Freddie to help home prices
For those of us who’ve been waiting for home prices to come down to sensible levels before we jump back into the market, you’d think that the Treasury had a plan to help lower home prices, but this isn’t the case.
NEW YORK (Reuters) – The Treasury Department is considering a plan to halt sliding home prices by lowering mortgage rates through home-finance powerhouses Fannie Mae and Freddie Mac, the Wall Street Journal reported on Wednesday.
Strangely, they seem to think that you can stop prices from falling AND make homes more affordable- making them more appealing to buyers: [Hat tip J.K.!]
Some (experts) felt lower rates would help stabilize the housing market by bringing in new buyers and would give those who refinance more money to spend.
"If it gets people buying homes and spending, it will help reverse the economy and get us out of this recession," said Scott Talbot, senior vice president of the Financial Services Roundtable, which is pushing the measure.
There are a couple of problems with this theory. The first is that it won’t work:
Rates are already inching up, hitting 5.75% on Wednesday, said Keith Gumbinger, vice president of HSH Associates. Several government attempts to lower mortgage rates this year have failed to have a lasting effect.
Also, the proposal would do little to help troubled borrowers who have fallen behind on their payments, have no equity in their homes or have lost their jobs. With credit standards still high, these homeowners would not be able to refinance and take advantage of the lower rates, he said.
Finally, super-low rates could keep private investors out of the mortgage-backed securities market, forcing the government to remain the primary buyer of such investments, Gumbinger said. Rates have not fallen below 5.37% in more than 45 years.
The second thing the Treasury Department ought to consider is that nothing brings people back into the market like lower prices. Markets such as Las Vegas and some areas in California and Arizona that have seen large price declines have seen year-over-year sales improvements.
If the Treasury really wants to help home prices- they should let them fall. If they want to help the mortgage markets, they should quit changing the rules of the game every few days. Capricious actions increase uncertainty and discourage investors.
There’s a reason that it is said that the third least trusted phrase in the English language is I’m from the government, I’m here to help. The Treasury isn’t helping.
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People buying homes will help the economy big-time. I agree with you that playing with the interest rate won’t work. Interest rates started the boom and busted it. Thanks fed, brilliant. Please let nature takes its course and get your incompetent butts out of the room. At the end of the day all of these billions and trillions are just stolen from us to boost up the stock market and enrich the chosen few. Helping out the masses is the facade. Igor put his money on crash.