Tuesday, March 16, 2010

Meredith Whitney: Housing Market Faces Double Dip

Although the real estate market hasn't climbed the way the stock market has, and I think the stock market will experience the most dramatic damage from a double dip in the recession, I can't argue with Meredith Whitney's point that the Fed pulling out of the MBS market won't have an impact.

“The asset classes of MBS and Treasurys are priced for a material correction in my opinion,” she said on CNBC. “The only buyers of agency MBS are the Fed and banks, so you see how precarious that market is..If the Fed pulls back, that’s a really big deal… because there’s no substitute buyer.”

As a result of the damage already done to the real estate market, I am a very cautious buyer, especially when this can be coupled with the low rates that can be locked-in long term at the present time. What this pull back from Fed purchases is likely to do is spike interest rates higher, so you won't be able to lock in the rates you can now. That said, any further pullback in prices should be viewed as a buying opportunity. The spike in rates will result in the cash flow structure of any purchase not being as attractive as it is right now, but it should still be considered a buying opportunity as the Fed at some point is likely to open the monetary floodgates that will unleash price inflationary greater than that of the 1970's.



UPDATE: Michael Dunton, of Mt McKinley Bank, backs me up on the end of low mortgage rates:

After the Fed stops it's spending spree on MBS, who will step in and provide 5% mortgages?


imo: Kiss the 30-year 5% mortgage good-bye. Very few will want to fill that role.

1 comment:

  1. After the Fed stops it's spending spree on MBS, who will step in and provide 5% mortgages?

    imo: Kiss the 30-year 5% mortgage good-bye. Very few will want to fill that role.

    ReplyDelete