Housing News: The Wait Is Over...

and as everyone claims they expected, the Federal Reserve Board raised the prime interest rate to 5.25%.

Mortgage rates have responded by jumping to nearly 7%, stoked by prognosticators' fears of inflation--and yet, that same interest rate rise has spurred a spike in stock prices.

So much for housing being the soundest of investments, eh? That flapping noise you hear is the flock pulling all of their money out of REITS and into the hedge market. ;)

The more I think about it, the more I think this constant obssession with inflation is just going to mean more pain for homeowners and buyers. People are already stretched too thin with overextended credit card debt, mortgage debt, high gas prices, etc., and the higher interest rates go, the tougher it's going to be for them to keep up with their regular payments. I can't wait to see what the average jump in variable APRs is going to be.

Robert Reich firmly believes that Bernanke is fighting the wrong enemy, letting his desire to prove his Wall Street cred overwhelm his analysis of market realities. Money quote:

If anything, there’s too much capacity relative to demand. This is a recipe for deflation. Prices can begin to drop because buyers hold off, expecting further price decreases. It happened in Japan in the 1990s. It’s already starting to happen in certain housing markets in the United States that had been red-hot but are now cooling so fast home prices are dropping. Deflation is often accompanied by stagnant or falling wages, which make it harder for consumers to afford to buy. Look what’s been happening to American wages.

Absolutely. This is a stagflation market if it's anything, and as Reich points out in a separate editorial, the failing housing market has been propping the economy up. Once those housing and construction jobs start collapsing, what will be left?

Here's a tip for ya, Ben...if you're gonna raise interest rates as if wages were increasing, it helps to actually increase the wages, ya know?

Posted at June 29, 2006 12:18 PM

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and as everyone claims they expected, the Federal Reserve Board raised the prime interest rate to 5.25%. Mortgage rates have responded by jumping to nearly 7%, stoked by prognosticators' fears of inflation--and yet, that same interest rate rise has spurred a spike in stock prices. So much for housing being the soundest of investments, eh? That flapping noise you hear is the flock pulling all of their money out of REITS and into the hedge market. ;) The more I think about it, the more I think this constant obssession with inflation is just going to mean more pain for homeowners and buyers. People are already stretched too thin with overextended credit card debt, mortgage debt, high gas prices, etc., and the higher interest rates go, the tougher it's going to be for them to keep up with their regular payments. I can't wait to see what the average jump in variable APRs is going to be. Robert Reich firmly believes that Bernanke is fighting the wrong enemy, letting his desire to prove his Wall Street cred overwhelm his analysis of market realities. Money quote: If anything, there’s too much capacity relative to demand. This is a recipe for deflation. Prices can begin to drop because buyers hold off, expecting further price decreases. It happened in Japan in the 1990s. It’s already starting to happen in certain housing markets in the United States that had been red-hot but are now cooling so fast home prices are dropping. Deflation is often accompanied by stagnant or falling wages, which make it harder for consumers to afford to buy. Look what’s been happening to American wages. Absolutely. This is a stagflation market if it's anything, and as Reich points out in a separate editorial, the failing housing market has been propping the economy up. Once those housing and construction jobs start collapsing, what will be left? Here's a tip for ya, Ben...if you're gonna raise interest rates as if wages were increasing, it helps to actually increase the wages, ya know?