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Housing Market: one more reason for Bernanke to fire up the printing press
This year I took advantage of the tax credit for first time home buyers. But it wasn’t an easy decision to make. I was really concerned that prices could fall another 10 to 15%.But the tax credit and the fact that I was looking for a place to live (and not just an investment) made me pull the trigger. But now that the tax credit has expired, my fears of a further decline in prices are becoming more and more real.
Housing demand plummeted in July after the tax credit expired. And there are so signs of recovery. There won’t be anytime soon. High unemployment and looming foreclosures will continue to put pressure on house prices.
Prospective Buyers Traffic, a leading indicator of future homebuyers’ demand, dropped back to March 2009 level. That suggests weak construction activity in coming months. And that’s actually a good thing. We don’t need more houses. We already have enough supply to meet demand for the next two years.
The house price index from the Federal Housing Finance Agency (FHFA) house price index also fell to its lowest level since September 2004. This weakness in the housing sector will give Bernanke one more reason to crank up the printing press.
Lower house prices reduce household wealth. So Bernanke will try to offset this loss of wealth by propping up financial assets. So he will flood the market with more dollars to lift markets. That’s why I’ve been focusing on selling the dollar against emerging market currencies in my Exotic FX alert. Bernanke will crush the dollar.
Other Posts from the Author
- If You're Not Invested in Emerging Markets, You're About to Miss Out - February 9th, 2012
- The Fed's Measure of Inflation is Essentially Meaningless - February 3rd, 2012
- How to Profit From US Dollar and Euro's Race to the Bottom - February 1st, 2012
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