Is a Housing Bottom in Sight?

Wow. Big news today. Bernake is living up to his "Helicopter Ben" nickname by vowing to pump another $1 TRILLION into the U.S economy, partly by buying government bonds for the first time since the 1960's. What does this mean for you and I?

"The Fed’s announcement signals a clear intent to continue to drive mortgage rates lower and we expect them to meet this objective. ... In 2008, the average mortgage rate on the outstanding stock of loans was about 6.50%. So, if the Fed brings 30-yr fixed rate mortgages down to 4.50% and all homeowners are able refi, the aggregate permanent cash flow savings would be on the order of $200 billion per year."David Greenlaw, Morgan Stanley, WSJ Real Time Economics March 18, 2009

This could be really good news in pretty dark times. Combined with data showing some life in new housing starts, this is the first sign of life for a housing bottom. This is why we need to be a contrarian, because in the darkest of times, sometime always seems to pop up that changes everything.

BUT WAIT. Don't go rushing in to buy everything just yet. I did a little more digging. Calculated Risk puts it very succinctly:

"But some readers are confusing a bottom in housing starts with a bottom in pricing. It doesn't works that way! There will be two distinct bottoms for housing:

1) First single-family housing starts and new home sales will bottom

2) Then some time later, prices for existing homes will bottom

Just about every housing bust follows this pattern. The bottom in prices could be a year, or two, or more away. It is way too early to try to call the bottom in prices. House prices will almost certainly fall all year and probably next year too. Prices will continue to fall. Prices are not at the bottom."

OK SO NOW WHAT?

It's tough to say. If I had to guess, I'd say that:

1) We'll at least get a stock market rally for the short term. I think it will be short lived as reality will catch up with optimism, but we gotta start somewhere!

2) You should run, not walk, to see if you can refinance your mortgage near or below 4.5%. There WILL be renewed interest in housing this summer, coinciding with the school year. Hopefully they help out those in jumbo mortgages!

3) The gold trade is still very much in tact. In fact, this bodes VERY badly for my "wait" approach and others are clearly wise to the theory and jumped in and bought gold on the news.

Source: http://www.calculatedriskblog.com/ and WSJ