Inevitably even the grizzlies are watching economic indicators gauging the market for housing “recovery” as talk of a recovery in the United States has now been confirmed by 3.5% growth in the 3rd quarter. The current home sales are at a low while construction spending is exploding, as well as high-end incentives for those who are buying have boosted the chances of an identical 2004 housing recovery we all enjoyed so much. However, there is a question of size, in relation to a potential housing recovery, which could be different from 2004 significantly and could slash the lasting effects of a sluggish housing market for the wider economy. This article will try to look back and assess the American economy impacted by housing market turmoil Housing Market from a historical and quantitative perspective.
Price To Earnings
There were 24 months in between the peak 6.5 percent Federal Funds rate in summer 2000 and the screeching stop to 1% in December 2003, when rates would would hover through Independence Day of the following year. Prior to new millennium S&P 500 P/Es in the early forties and the subsequent share price slashing in the forties, one must go back into 1961 to view a Fed Funds Target below 2% , and even further back up to 1954 for an overnight rate at or below 1 percent. Visit:- https://forbrugerhuset.dk/
We also forget the fact that before 1995 the S&P 500 was last to have a P/E ratio higher than 25 in the year 1930, but this fundamental number remained higher than 20 for the duration of the recession before and up to October of 2008.
The American Dream Home
Prior to the economic downturn of 2001 there had been sweeping legislation to extend this “American dream” of owning one’s own house to those with lower incomes. Mortgages were usually originated through third-party stores and were purchased by GSE Fannie Mae and Freddie Mac mortgage strongholds. In 1996 in 1996, in 1996, the United States Department of Housing and Urban Development (HUD) policy demanded that a specific percentage of the portfolios of loan portfolios owned by Fannie and Freddie be sub-median income products, totaling 52% of the GSE guaranteed mortgages by 2003. The appearance of Alt-A, interest-only, and ARM mortgages were the bread and butter of “lip-smacking” originators. They were later transferred to and absorbed into fortune 500 bank balance sheets with the Moody’s/S&P rating package (i.e. MBS and CDS instruments).
Housing Recovery 1.0
The first time it was that households were unable to afford buying new homes , until 30-year fixed rates dropped below 6% in January 2003 and remained there, linked to close to 1percent Federal Funds rates, up to October of 2005. Prior to 2003 30-yr fixed rates were last at 5.71 percentage before 1971, when the Freddie Mac data stops, while the New York Times vouched that these low rates had not been seen since the 1960’s. The subsequent price rise in assets that resulted from low-cost money and an insatiable demand for homes brought the economy out of recession with an explosive pace, and the resulting growth vector was driven by consumer spending.
Fannie and Freddie
The mortgages bought by the GSE Fannie Mae and Freddie Mac strongholds, facilitated “zero down” financing to less wealthy homeowners who wanted to purchase an apartment and provided powerful propaganda for hopeful politicians. Barney Frank went on record supporting the HUD policies for riskier mortgages carried by the GSEs. Frank continued to back Fannie and Freddie even as the CEOs endorsed the addition of “Alt-A” products as a significant component of their operations. The total number of Government capital injections at Freddie reached 60 billion dollars as Paul Miller of FBR Capital declared that “they will require at least $200 billion in capital” which was promised to the firm from the Treasury.
What the Data Says
GDP data tells us that the residential market grew at approximately 7.35 percent per year over four straight years before leveling out in the third quarter of. The flood of capital that flooded the residential real estate market 2002 to 2006 was so great that the four year average of residential investment jumped 22% over previous four years, an increase that added $126 billion per year, while since 2006 consumers’ residential investment is declining by an average of 20% annually.
The story of the crumbling housing market isn’t alone in its prophetic nature, but by looking at the recent past, we can see the effect that a rising housing market could have on GDP, and how it will impact to and the U.S. economy as a as a whole.
Fed Quantitative Easing (QE)
Concluding that the only answer to an over-debted public market is to transfer the weight of current debt from public to private balance sheets and the U.S. assumed all risks that had led to the major banks being shorted in the first instance. In the event that the overnight interest rate for banks to borrow each other crashed to zero, and LIBOR (London Inter Bank Overnight Rate) was high and the Fed resorted to physically buying and insuring the toxic loans that are still in default to this day on the public’s rather than private eyes. The moment the Fed had thrown its bathroom sink full to the problem, QE at the issue, and its green Obama administration declared that banks shareholdings would remain private, the financial stocks rebounded and the broader indexes followed.