Thursday, August 27, 2009

Higher mortgage rates?

From Jeffrey Lacker regarding the Fed purchasing MBS:
With the economy leveling out and beginning to grow again later this year, and with bank reserve demand ebbing as financial conditions improve, I will be evaluating carefully whether we need or want the additional stimulus that purchasing the full amount authorized under our agency mortgage-backed securities purchase program would provide.

The Fed is a huge driver of demand for MBS for the people calling bottom on housing that bottom is precipitated on 5% interest rates. If a significant amount of demand is removed yields will definitely rise and housing prices will fall as a result.

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