Do you think QE3 will hasten California’s housing recovery?
- No. (82%, 73 Votes)
- Yes. (18%, 16 Votes)
Total Voters: 89
The Federal Reserve (the Fed) has finally announced plans for its third round of quantitative easing (QE3). Touted as a total game changer for the still floundering U.S. economy, the Fed has vowed to purchase $40 billion in mortgage-backed bonds per month until and after the jobs market has fully recovered — at least until 2015.
first tuesday insight
Investor confidence is already on the rise due to the Fed’s plan to continue aggressive quantitative easing until the economy is clearly out of the woods — a strong sign for jobs and thus good news for the real estate market.
Mortgage rates are bound to decrease to what they ought to currently be, as the spread between the 10-year Treasury Note and the average 30-year mortgage rate (currently at 1.8%) will return to the historically proper 1.4%. This is good news for sellers as buyers will be able to qualify for larger loans, which will lead to temporary asset price inflation in the real estate market. Sticky pricing sellers may get what they are asking for in the next several months as interest rates decrease and prices rise — for the moment.
If everything goes as the Fed has planned, QE3 will stimulate the greater economy by increasing demand for employment, which will begin a virtuous market cycle profoundly affecting the real estate market for the long term. As demand for labor increases (job creation), the demand for purchase-assist money will also increase, organically driving up mortgage rates over the next 10 to 15 years.
As interest rates increase, property prices will fall again, finally finding their way back to the mean price anchor. This is what a real recovery looks like, folks. Remember, we are not placing our bets on a bubble to float all ships over the iceberg, we are looking for a steadily rising tide to keep us on a sustainable course.
Stay tuned to first tuesday as we keep you updated on how this stimulus is affecting you and the California real estate market.
For more on the factors directly affecting California’s housing market, see:
Re: Fed Ties New Aid to Jobs Recovery in Forceful Move from the New York Times, The Federal Reserve launches QE3: The power of positive thinking from the Economist and With QE3, How Low Will Mortgage Prices Go? from Forbes