“Our capital markets are deep enough that I’m not as worried about the ability to be able to fund those mortgages,” he told an audience Tuesday at a commercial real estate conference in New York. “Price will change, and I think market participants will step up as the price changes.”So Mr. Rosengren, why has it taken 8 years for you to think markets are deep enough to not be worried about the ability to fund mortgages? And what rate / price change will be necessary for them to do so? And when do you think this will be possible?
The thing is, you and your comrades over at the Fed should have allowed this adjustment to start happening 5 or 6 years ago. Instead you have artificially propped up mortgages, holding unrealistically low rates for far to long now, so long in fact that you have allowed the creation of bubble housing prices in at least a dozen, maybe as many as 20 markets in the US. These are not irrelevant markets, they are huge metropolitan areas where prices have already surpassed the bubble peaks of just a decade ago. This time, YOU are the MBS market! YOU have allowed / created the bubble and NOW you state you are confidant the "market" will pick up the slack at "adjusted prices"...
Well Mr. Rosengren, what is that price? My guess is the highest quality mortgages in non-bubble market cities would need to yield north of 6.5% in TODAY'S interest rate environment to bring back private investors with bubble markets. Less then true AAA mortgages will need to be north of 8% for the same.
Now, lets fast forward to 2019 when YOU bubble creating Fed officials have managed to back interest rates to "normal", say long bond 6%+ and short end 2%+ where do you think mortgages need to be then to bring in participants, cause my dear Mr. Rosengren they will not be in the market before then. How many people will have serious mortgage servicing issues then, with average auto loans at $38,000+ with 7 year terms, average college debts $100k with lifetime payoff terms, and an increasing number of mortgages going under water as the bubble you created starts to correct as interest rates jack up? How many folks will purchase those $1 million dollar houses at 7% or 8%?
You are in a catch 22 sir. I suggest you go very slowly and steadily now as you suggest and push congress to stop sitting on the sidelines about Fannie / Freddie and find a way to provide serious liquidity to the mortgage industry as you wonderful Fed officials start to retreat from the market.
OH, but maybe I am wrong... Maybe those "bubble" prices are actually reflecting the global loss of purchasing power of all "major currencies" as the money printing machines across the globe find the wealthiest people parking it in hard assets because bricks and mortar will not vanish like the purchasing power of soon to be highly irrelevant fiat currencies. The most reckless policies in human history, from the ponzi-scheme government debts, over extended private citizens to the reckless money printing of central banks all come crashing down...
