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"Fed chiefs give the good, bad and ugly on housing and monetary policy"

HousingWire..Feb 24, 2012

"A new generation of Americans may eschew homeownership altogether after witnessing fallout from the housing bubble, said James Bullard, president and CEO of the Federal Reserve Bank of St. Louis

Bullard made that assertion while commenting on a paper titled, "Housing, Monetary Policy, and the Recovery" during the U.S. Monetary Policy Forum under way Friday in New York City. The paper was written by Mike Feroli (JPMorgan Chase), Ethan Harris (Bank of America), Amir Sufi (University of Chicago Booth School of Business), and Ken West (University of Wisconsin). 

Bullard, commenting on the paper's findings, said a major shift is under way, reshaping the old story of homeownership as the ultimate American dream. 

"The current cohorts of new homebuyers likely see homeownership as a fundamentally riskier proposition than earlier cohorts, and therefore may be more likely to rent than own," he said. "Such a theory may suggest a more permanent shift to renting." 

Bullard also warned that Americans with outstanding mortgage debt are weighed down by excessive debt levels. 

Of the 75.3 million American homeowners, 49.4 million had debt outstanding in the most recent third quarter. 

Altogether, these homes had $712 billion of equity to support close to $10 trillion in mortgage debt."

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  • February 25 2012 - US
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Profile picture for Dunes ..
  • February 25 2012
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I don't think its anything new, perhaps just a bolstering of the idea that the housing bubble was a anomaly that shouldn't be repeated.  The problem is that people want to buy sometimes whether its a financially sound decision for them or not.  Its okay if buyers are realistic about their expectations for the housing market.  The problem during the bubble days was when everyone refused to look around the corner at what was inevitable.

Personally, federal debt, the overprinting of and subsequent devaluation of the dollar, the threat of our inability to borrow any more money to pay off the borrowed money and potential collapse of the economy is of utmost concern.  So this was particularly interesting since I really don't know a lot about such stuff:

"Once a central bank ventures into fiscal policy, it is likely to find itself under increasing pressure from the private sector, financial markets or the government to use its balance sheet to substitute for other fiscal decisions," Plosser warned. "Such actions by a central bank can create their own form of moral hazard, as markets and governments come to see central banks as instruments of fiscal policy, thus undermining incentives for fiscal discipline. This pressure can threaten the central bank's independence in conducting monetary policy and thereby undermine monetary policy's effectiveness in achieving its mandate."
  • February 25 2012
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Profile picture for SoCal Engr
The housing bubble was not about "owning a home". It was about "wealth building through the real estate market". It was a Ponzi-scheme driven by easy access to credit, fueled by a combination of greed and ignorance (in differing measures).

Most of the people I know are still interested in home oiwnership, but that is driven by a sense of permanence/security, based on a sense of security in their employment/income. Those who are less secure, or still need mobility to pursue their careers, are more likely to rent.
  • February 25 2012
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Profile picture for the_country_hick
The abstract missed one important fact that could change things quickly.

The United States has a higher per capita debt burden than any European country, including riot-ridden Greece.

"Using the most recent data available from the International Monetary Fund, the Senate Budget Committee found that U.S. federal government debt per capita is nearly $45,000. That is almost 15 percent higher than the per capita debt burden of Greece ($38,937).

The Senate Budget Committee also notes that our debt per capita would rise to $75,000 by 2020 if Presdient Obama's budget became law."

How do you define unsustainable?

http://www.thegatewaypundit.com/2012/02/us-debt-to-gdp-passes-101-per-capita-debt-higher-than-greece/

Once (not if) investors get as concerned as they did with Greece expect mortgage interest rates to rapidly rise. The federal reserve can not stop that in this kind of circumstance.

This is the kind of thing that I have been aware is coming that makes me very nervous about interest rates.
  • February 25 2012
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