While I could write for a LONG time about it, I’m going to limit it to what I feel are the top 6 things that I think could very well happen. Keep in mind, this is being written after watching President Obama’s press conference but before anything gets passed.
1. The market is expecting that both the Stimulus Plan and TARP II will provide “the answer” to the problems that are currently plaguing our economy. With that being said, I believe the markets will be disappointed because the problems facing the economy are way more complex and urgent than what one or two bills can solve. The disappointment will put downward pressure on stocks and upward pressure on rates.
2. The $15,000 tax credit for home buyers will pass but rather than jumpstarting the housing market, it will instead cause a few people to buy homes, mainly first time home buyers, and will extend the inventory problems that we have because prices won’t adjust as they should. We won’t get nearly the “bang” for the $Billions that will be spent on the tax credits. I’m sorry but I really think the main beneficiaries of the $15K tax credit will be mortgage lenders, real estate people and the relatively few people who were already thinking of buying. Will it reduce inventories? No, other than taking some bank owned inventory (for first time buyers) off the banks, the rest of the people will be “shuffling” inventory because they all have a house to sell.
3. Between the Stimulus Plan and the TARP II funds, we’ll (yes, it’s you and me) will be spending close to $1.2 Trillion. Do we have the money? No, we don’t, so we’re going to borrow it. What will that mean to the market? A couple of things are going to happen (obviously in my opinion): 1) The government is going to flood the market with debt in order to finance this spending. That’s going to push the supply demand equilibruim off base and that is going to put upward pressure on mortgage rates.
4. What about that 4.5% mortgage rate? Is it Read more