Source: WSJ


The housing market has greatly benefited from the Greenspan era, especially over the past decade. The Federal Open Market Committee strategy began to finally crimp growth in the housing market this past summer after 12 months of rate increases. The recent change in the housing market was effected by rising short term rates designed to reign in the inflation threat, before which low rates previously had provided an historic level of affordability to purchasers and triggered one of the most significant housing booms of all time.

Over the last several months, long term rates have remained largely stagnant, even falling, but short term rates have continued to rise.

Of great concern to the housing sector is the actions of the incoming Fed Chair Bernanke since Greenspan seemed in favor of asset appreciation, both in stocks and housing, while at the same time, was inflation-averse.

Mortgage rates have driven this housing boom and will determine the eventual outcome.

The FOMC raised the federal funds rate for the 14th time in a row by 25 basis points to 4.5%. Most economists think there is at least one more increase left before FOMC takes a breather. However, Bernanke, may have some wiggle room and forgo or skip a rate increase at the next meeting.

The removal of the word “measured” has been seen as a sign that the Fed is nearing the end of this 18 month strategy. The WSJ does an amazing job dissecting the FOMC letters after each meeting [WSJ]

One thing I will miss about Greenspan is the intense analysis of his vocabulary. Just think about what the WSJ has done here. It has dissected a one page letter to generate clues about future rate moves. This is insane, but necessary.

Bernanke is in favor of more openness with the target rate goals of the Fed. This will likely only work if he does not burn up the credibility that Greenspan has amassed over the past 18 years. How his moves impact the housing market and its importance to the economy, will largely determine his success.


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