I finally got a chance to read the Mishkin speech. It sounds to me like the Fed will intervene if there’s a housing crash “to ensure that it will not do serious harm to the economy.”
I read this as meaning that if the housing downturn affects the general economy, the Fed will lower rates to provide households some “breathing room.” So far consumer confidence and spending are holding up but if the consumers tighten too much, the Fed will act decisively to lower rates.
This will only prolong the pain in real estate but save the general economy. I say don’t buy RE in 2007 because there are more price decreases in store in 2008.
I predict a rate decrease as the economy weakens towards the end of 2007.
