Remains to be seen what treasuries will do. Early concensus is the Bond market will not like this – sending bonds lower and yields higher…meaning – you guessed it – higher interest rates. Won’t help housing much if that happens. BUT, there is so much speculation out there. IF (and that is a big if) this bailout restores some confidence in the US banking system, then the cost of borrowing money here and abroad may ease a little. Right now the spreads are ridiculous for US banks and we are seeing that in mortgage rates. It is hard for me to believe after the world digests the fact that these two companies have been insolvent for some time and we are just now realizing it, that it will boost confidence. Holding losses on the books for 2 years? Have to wonder how many other banks are insolvent right now with this creative accounting. I also wonder how Japan is viewing our current state – perhaps some deju vu moments for them? Do you think they will be rushing to buy our bonds or equities after what they went through. China has already taken a huge hit on the value of the US treasuries and MBS they hold (and they hold a lot ~ 1 trillion or so). Do you think they will be rushing head long in the future to buy more? The US had to step in and take control and hopefully restore some confidence in
the US banking system – they had no choice (Frannie and Freddie were insolvent), but there will be fallout. How it all ends remains to be seen.
I just know I won’t be rushing out to buy a house anytime soon. We have a long way to go to get out of this mess. I find it amusing to hear people so anxious to buy, like they are going to miss the bottom and prices will suddenly start spiking again. That is not going to happen. What we saw was an illusion created by “artificial” demand that will not return. People who never should have qualified for a home did. Further we had a ton of speculators, buying and selling multiple homes in their quest for an easy dollar. You know there is something wrong when we have TV shows about flipping houses for a profit. Those people are out of the market now for a long time. Those that went into forclosure are going to have a hard time buying again for many years, even if they have stable income and can manange to come up with a 20% down payment due to their damaged credit. Anyone old enough to remember the late ’80s know that something similiar happened then. After the decline it took ~ 8-9 years for home prices to start increasing. But that was nothing like we have seen this time around. I suspect it will be a decade or more before we see home appreciation of any kind again – hell we haven’t yet stopped dropping.
