Well, it is only a week but given the past few years, a week of positive news is most welcome. Sure, there are still plenty of negative things to focus on, but let’s focus on the positive. Hopefully, it becomes a trend!
First, The Fed announced what was long anticipated in buying $400 billion in treasuries. The difference, or “twist” this time, is which type they are buying . With QE1and QE2 , The Fed wanted to help rates with the former and help equities with the latter. This time, the goal is to help rates remain low by buying longer term treasuries. The Twist was first utilized during The Kennedy Administration and named for the Chubby Checker song .
So far, the opinions have been varied as to how smart of a move this was. Critics need only refer to past stimuli for evidence. In theory, it should help but the Eurozone is the wild card. Countries and banks all received rating downgrades this week and stocks dropped significantly after the announcement on Wednesday. There are many headwinds opposing the twist.
The Mortgage Bankers Association reported that refinance applications have increased and are usurping purchase applications. In addition, home prices are up- some reporting 20% , which is encouraging . Maybe this suggests a bottom in pricing? Once we find a bottom, things can improve. Unfortunately, foreclosures are expected to increase soon. Could mean good buys but can also stall a housing recovery.
Low rates can help housing , but many in and out of lending are calling for less regulation. So many otherwise worthy borrowers are still unable to refinance or buy a home. BASEL III , Dodd -Frank , and more are all named as economic and lending anchors. Unemployment certainly doesn’t help but DC seems wholly clueless as how to fix housing .
For example, President Obama announced his intent to help underwater homeowners by loosening regs on The HARP program as well as lower costs for those borrowers. This week, Mr. DeMarco, The acting head of FHFA announced that he will increase costs to consumers and delivery fees to lenders in “an effort to keep money flowing to the agencies ” and to “protect taxpayers”. Sounds great but nullifies what Mr. Obama was discussing .
The Twist was named after the famous song. Songs are meant to inspire, provoke thoughts, and get you dancing. In order to dance, or simply move forward, you have to put one foot in front of the other. Once legislators recognize that you can not move forward if you can not get out of your own way, maybe we will have a new Fed plan named Orbison. Then, everyone will be dancing in the streets.