QE Forever and the Real Estate Market

One of, if not the main reason why I am negative on real estate, is government intervention. It is unpredictable. The most recent fiasco is obviously “QE-Forever”. Specifically, I am referring to Bernanke's plan to buy $40 billion of MBS per month indefinitely.

There were only $97 billion of purchase loan originations and $275 billion of refinance loans during the 2nd Quarter this year.



Mortages, purchase originations, via ycharts.com – click for better resolution.



Mortage refinance originations, via ycharts.com    – click for better resolution.



If the purchase loan volume remains the same, Bernanke will be purchasing 100% of all originations and still have $23 billion per quarter left over. The actual excess funds will be even higher, because agency MBS are not 100% of all originations and Bernanke is only buying those.

As for refinances, these are "pre-pays" and the funds that are prepaid will be looking for a new home. Bernanke is in essence squeezing out $23 billion a quarter from the private sector and forcing these investors into other instruments. While there is seemingly a huge volume of refinances right now, the $275 billion can vanish completely if interest rates go up, or simply do not go down any further. Who is Bernanke going to buy the MBS from? If your answer is the agencies, you are probably correct. Freddie and Fannie were supposed to start reducing the size of their portfolios since they were placed under conservatorship four years ago. Bernanke's hidden agenda is to assist the Treasury in reducing the agencies' portfolio of MBS.

Will Bernanke be successful in driving down mortgage rates? I think the odds are slim. Rates are already far too low. One way of looking at mortgage rates may be:

10 yr treasury + hard cost of a mortgage + a reasonable spread = mortgage rate (hard cost is origination, insurance/reserve, servicing etc)

QE-Forever is trying to drive down the 10 year yield while reducing the spread to zero, which no private investor would likely want to match. If the spread is zero, why not just buy the treasury note? How far below the current 1.8% range can the 10 year note yield go? As a reminder, the QE's to date have driven mortgage rates from the 6% to the current sub 4% range with absolutely dismal results. Would an extra quarter percent really do anything for the market?



The 10 year treasury note yield via StockCharts – as an aside to Ramsey's remarks, we would note that whenever the Fed starts a 'QE' program, inflation expectations tend to rise, and treasury yields tend to rise with them. This time, inflation expectations were already at a fairly elevated level even before the Fed announced 'QE3'. Wither bond yields? PT – click for better resolution.




We are happy to report that our funding target has been reached – once again, a hearty thank you to all contributors, your support is greatly appreciated!

As a result of us having gotten from A to B, the annoying graphic is hereby retired. However, be aware that the donations button continues to exist. It is actually perfectly legitimate to use it during the non-funding season as well; assorted advantages we have listed that often result from doing so are likewise persistent (i.e., increased happiness, children including you in their songs, potential obtaining of privileges in the hereafter, etc., etc.). Unfortunately we can't promise that it will make the gold price go up, but we're working on that.

Thank you for your support!


To donate Bitcoins, use this address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke


One Response to “QE Forever and the Real Estate Market”

  • jimmyjames:

    QE-Forever is trying to drive down the 10 year yield while reducing the spread to zero

    I would add-according to Bernanke the end goal is to make you feel richer and buy a house-

    A Hail Mary pass at the end of the game in hopes that a bubble catches?

    His words-

    There are a number of different channels — mortgage rates, I mentioned other interest rates, corporate bond rates, but also the prices of various assets, like, for example, the prices of homes. To the extent that home prices begin to rise, consumers will feel wealthier, they’ll feel more — more disposed to spend. If house prices are rising, people may be more willing to buy homes because they think that they’ll, you know, make a better return on that purchase. So house prices is one vehicle.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • underpass-libraryThe Baby Boomer Survival Guide (Part I)
      The Yellow Machines Go Silent PARIS – What should you do if you are running out of time and money? This is the question we get from readers over 50… over 60… and sometimes over 70. We baby boomers were famously “na… na… na… live for today.” Now, it’s tomorrow. And many of us – often through no fault of our own – are having trouble making ends meet. At the Diary, we write about the world of money. About economic policy and how it affects you. But what if,...
  • US-winds-down-quantitativ-012Faith in Central Banks Dwindles
      Even Bloomberg Notices that Something is Amiss As anyone who hasn't been in a coma knows, assorted central bank interventions have failed to achieve their stated goals over the past several years. A recent article at Bloomberg focuses on their failure to reach their “inflation” targets. Of course, this particular failure is actually reason to celebrate, as it means that consumers have at least been spared an even sharper decline in their real incomes than has been underway in spite...
  • 3 EURO FRONTEU Moloch in a Fresh Bid to Inflate
      Brussels Alters Capital Requirements to “Spur Lending” Saints preserve us, the central planners in Brussels are giving birth to new inflationist ideas. Apparently the 2008 crisis wasn't enough of a wake-up call. It should be clear by now even to the densest observers that a fractionally reserved banking system that flagrantly over-trades its capital is prone to collapse when the tide is going out. 2008 was really nothing but a brief reminder of this fact. The political and...
  • U.S. Rep. Ron Paul (R-TX) speaks during the Republican Leadership Conference in New Orleans, Louisiana June 17, 2011.  REUTERS/Sean Gardner (UNITED STATES - Tags: POLITICS)Tell us Ron, What's the Plan, What's the “Austrian” Plan?
      What? No Austrian Prescription? Bloomberg Reporters Cannot Believe It This is truly funny. Ahead of the FOMC decision, Ron Paul, who is well-known as an an implacable critic and enemy of the Fed and a fan of the Austrian School of Economics, was interviewed at Bloomberg as to “what the Fed should do”. What makes it so funny is that the Bloomberg reporters seemingly cannot believe that Austrian economists simply have no “prescriptions” for the Fed. They keep pushing Ron Paul for...
  • Stockholm-Protest-BannerRefugee Crisis Blowback
      A Sharp Turn in Swedish Politics When we recently discussed Europe's refugee crisis, we mentioned that a sizable political backlash was to be expected and that unfortunately, extreme nationalist parties were likely to be among the main beneficiaries. We also mentioned the situation of Sweden, where the mainstream political parties in an ongoing fit of political correctness bordering on lunacy have apparently decided to transform Sweden into a province of Mesopotamia.   Leader of...
  • St._Benedict_delivering_his_rule_to_the_monks_of_his_orderThe Baby Boomer Survival Guide (Part II)
      A Lehman Moment for Commodities? LONDON – Today, we continue our philosophical look at what you should do if you are running out of time and money. (You can catch up on Part I here.) Where do we begin? With how to add wealth? Or how to lose it? The way to lose it is simple. You buy something that is not worth the money you paid for it. You are instantly poorer, whether you know it or not.   The pleasingly plump. Illustration by jdeer69     DJIA, daily...
  • SwanUS Stock Market: A Retest or Worse?
      Gray Swans and Black Swans By Monday's close, the S&P 500 Index was closing in on the low established in the August swoon – such a retest was essentially our minimum expectation, as V-shaped rebounds are very rare. The question is now whether it will only be a retest, or if something worse is in the offing. No-one knows for sure of course, but we'll briefly discuss what we are looking at in this context.   Image via NYTimes   It is interesting that as the market...

Support Acting Man


Own physical gold and silver outside a bank

Realtime Charts


Gold in USD:

[Most Recent Quotes from www.kitco.com]



Gold in EUR:

[Most Recent Quotes from www.kitco.com]



Silver in USD:

[Most Recent Quotes from www.kitco.com]



Platinum in USD:

[Most Recent Quotes from www.kitco.com]



USD - Index:

[Most Recent USD from www.kitco.com]


THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Buy Silver Now!
Buy Gold Now!