What is that sucking sound coming from the mortgage and housing industries this morning? It may be the sound of fear as the Federal Reserve may be contemplating ending it’s buyback program of mortgage debt with taxpayers money.
Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, said the central bank should end its purchases of mortgage debt as planned in March because the private market for the securities is “healing.”
Hoenig said last week’s report showing the economy lost 85,000 jobs in December doesn’t change his outlook for growth of 3 percent to 3.5 percent this year. The central bank should consider raising its target rate for overnight interbank lending from a record low even with unemployment at 10 percent, he said.
The ugly reality of the market is that the real estate industry has been being subsidized for the past year with lower interest rates and tax incentives to keep from imploding. Now we are looking at these subsidies going away because they are too expensive for the government to continue.
I see a muddle in the real estate markets for the next couple of years as we migrate away from a subsidized environment, see inflationary pressures, and higher mortgage rates.
Not the cocktail for a full on recovery that so many agencies and brokerages are counting on.
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