Reply #58: Is Greenspan trying to cool housing market?

[54anickel]

http://www.msnbc.msn.com/id/8160947/

Federal Reserve Chairman Alan Greenspan left little doubt Thursday that the central bank intends to continue pushing short-term rates higher. One major reason could be that Greenspan wants to do everything within his power to remove what he calls “froth” from some of the nation’s booming housing markets.

In testimony before a joint House-Senate committee Thursday, Greenspan reiterated that he is puzzled by the decline in long-term interest rates, which has seen rates for traditional 30-year mortgages slide to their lowest levels in more than a year. Such low mortgage rates are buoying the housing market, sending home prices surging at a 12 percent annual rate, according to one recent government report.

Greenspan and the Fed have little control over these fixed mortgage rates, which are pegged to movements in the massive global bond market. But the Fed does have a powerful influence over one important segment of mortgage rates through its control of short-term bank lending rates.

“The only part of the mortgage market that the Fed has control over is adjustables,” said Vince Boberski, senior economist at RBC Dain Rauscher.

Is THAT why the little weasel was pushing ARMs last year? Without a larger percentage of these gems out there they would have ZERO control? :shrug:

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By continuing to raise short-term rates, the Fed can reduce the differential between such relatively risky loans and higher-quality, fixed-rate mortgages, Boberski said.

“It’s a way for them to let some air out of the housing market,” Boberski said.

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