Because US housing is now in yet another terrible position, (despite the ongoing claims of some foolish SI posters who for years have fantasized they work for hedge funds and manage money), I think it's likely that the FED will be buying MBS again before Q2 2011 is over. As you know, housing is already double-dipping--as predicted by anyone with common sense--and there's no wage growth, no job growth, and no credit growth to revive it. Worse, lending standards are tightening considerably. While we will no doubt see some nibbling around the margins, such as some hot money from BRICS coming into Miami to buy some cheap condos, there is really no way to globally arbitrage US residential RE. And now of course, interest rates are rising.
I think the FED will try to create an almost separate interest-rate market for housing by 2011. This operation too will fail. The other possibility is that they let housing deflate more but we know what that will do to bank balance sheets. Which is what the FED cares about most, of course.
2011 looks to me as the year when the trapped housing market finally becomes truly unsolvable. Knock on effects will of course hit state and local tax revenues all over again.
The witches brew of of a weak dollar, rising interest rates (falling US treasury prices), descending municipal bond markets, and food and energy inflation looks ready to finally unfold in nasty fashion in 2011.
Of course, for the individual investor, there are solutions to what awaits us. :-)
Best,
G |
