"Bush needs to rain in the Fed bank if housing dips too much."
No financial expert here, but from what I understand we're experiencing a rate hike in short term rates but steady to falling long term rates.
This should insulate the housing industry at least for now?
Some adjustables are tied to short term rates. But the housing market is not going to collapse even with high rates, only become realistic in certain markets. People who are currently buying $600,000 houses with interest-only or adjustables are speculating on price increases. That speculation, and the corresponding ridiculous prices in certain markets, will end with higher rates. And that is a good thing.
Given the GSEs make their money by borrowing short term and lending long, NO. Given that they've been borrowing Euros, Yen,Yuan etc. short term and lending dollars long term, Hell No.
A boost in short-term rates could cause long-term rates to fall by slowing the economy down over the long haul. However there is no immediate direct correlation between fed hikes in the discount rates and interest rates for long term loans like mortgages.
The bigger pressure on long-term rates comes from federal borrowing, which shows no signs of abating. From numerous reports it sounds like Bush will call for a freeze in about 1/6th of federal spending tonight, what about the other 5/6ths? Well, most of that goes to Medicare, SS, defense and interest on the debt, which nobody has a plan to reduce (instead the plans are to increase spending on SS and Medicare).
With all due respect that is incorrect. I have 3 substantial commercial mortgages pending closing right now. 20-30 year rates are up even more than the corresponding Fed rate hikes. I could fix a 20 year amortization-five year balloon at 5.00% last year. Now the same loan is 6.5%....25 basis points over the hikes. They are doing this to cushion the trend upwards. Greenspan is extremely legacy conscious about inflation. I think he likes to keep a governor on both the debt and equity markets a wee bit much. Of course what he does affects my cash flow markedly so I'm prejudiced. I just don't see an overheated economy that needs reigning back....the only inflationary items are the usual....petro, medical care and education. Of course petro hikes doppler the whole shebang but that is cyclical. I'm going 3 year balloons for now. I assume Prime is now 5.5% as of this latest hike.
Residential mortgages are a somewhat different animal but also reflect the Fed rate as well....among other factors.