And it could cause inflation to take off and possibility
Goldman: Fed’s QE3 could hit $2 trillion
By Chris Isidore @CNNMoney September 24, 2012: 12:06 PM ET
NEW YORK (CNNMoney) — The Federal Reserve’s QE3 bond buying program announced earlier this month could last until the middle of 2015 and eventually reach $2 trillion, according to an estimate from economists at Goldman Sachs.
The Goldman economists also wrote in a report that they believe the Fed will not raise the federal funds rate until 2016. This rate, which is used as a benchmark for a wide variety of consumer and business loans, has been near 0% since December 2008. The Fed said in its last statement that it expected rates would remain low until mid-2015.
The Fed announced earlier this month that it would buy $40 billion a month in mortgages for the foreseeable future, a plan that has been dubbed QE3 since it is the central bank’s third round of quantitative easing. The Fed hopes that by pumping money into the economy lowering mortgage rates, QE3 could lead to more consumer spending and more hiring by businesses.
Goldman’s $2 trillion estimate also includes the buying of long-term Treasuries planned by the Fed under an extension of what is popularly known “Operation Twist.” In that program, the Fed is selling short-term Treasuries to fund those purchases.
The Goldman economists also said they think the Fed wants to see the nation’s unemployment rate in the 7% to 7.5% range before it ends its bond purchases, and in the 6.5% to 7% range before it starts raising interest rates again. Unemployment stood at 8.1% in August, down from 8.3% in July. But much of the most recent decline was due to job seekers, particularly young adults, dropping out of the labor force as opposed to a pick-up in hiring.
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Proprietary OC Housing News home purchase analysis
13642 SPRINGDALE St Westminster, CA 92683
$399,000 …….. Asking Price
$315,000 ………. Purchase Price
6/11/2012 ………. Purchase Date
$84,000 ………. Gross Gain (Loss)
($25,200) ………… Commissions and Costs at 8%
============================================
$58,800 ………. Net Gain (Loss)
============================================
26.7% ………. Gross Percent Change
18.7% ………. Net Percent Change
73.1% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$399,000 …….. Asking Price
$13,965 ………… 3.5% Down FHA Financing
3.60% …………. Mortgage Interest Rate
30 ……………… Number of Years
$385,035 …….. Mortgage
$100,536 ………. Income Requirement
$1,751 ………… Monthly Mortgage Payment
$346 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$100 ………… Homeowners Insurance at 0.3%
$401 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
============================================
$2,597 ………. Monthly Cash Outlays
($263) ………. Tax Savings
($595) ………. Equity Hidden in Payment
$16 ………….. Lost Income to Down Payment
$120 ………….. Maintenance and Replacement Reserves
============================================
$1,875 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$5,490 ………… Furnishing and Move In at 1% + $1,500
$5,490 ………… Closing Costs at 1% + $1,500
$3,850 ………… Interest Points
$13,965 ………… Down Payment
============================================
$28,795 ………. Total Cash Costs
$28,700 ………. Emergency Cash Reserves
============================================
$57,495 ………. Total Savings Needed
The property above is available for sale on the MLS.
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Cost of Ownership Analysis
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August Pending Home Sales Dip to lowest level since April: NAR
After reaching a two-year high in July, the Pending Home Sales Index (PHSI) fell in August to 99.2, the lowest level since April, the National Association of Realtors reported Thursday. Analysts had expected the index to rise to 102.2. The index fell in three of the four Census regions.
The drop in the PHSI followed by one day a report that new home sales for August were essentially flat to July, down 0.3 percent.
The slippage in both the PHSI and new home sales – both of which are based on contracts, not completed transactions – dampens the outlook for home sales. PHSI data are generally reflected in the report on existing home sales two months out, that is the August PHSI points to weaker homes sales reported for October.
Since April, the PHSI has alternated between rising and falling: down in April, June and August while increasing in May and July. The NAR though pointed to a longer trend: even with the August drop, the index is up 10.7 percent in the last year.
The drop in the August PHSI follows a string of positive housing indicators: increases in existing and new home sales in July, increases in the Case-Shiller Home Price Indexes for July and continued increases in builder confidence in September and in housing starts in August. Both the median and average price of a new single family rose in August. The only negatives in recent reports were a slight drop in housing permits in August and in the median price of an existing home in August.
The PHSI, according to the NAR, has improved year-year for 16 straight months, up 10.7 percent in August, a slight retreat from July when it was up 12.6 percent year-year.
Regionally the PHSI improved only in the Northeast where it rose 0.9 percent to 78.2 in August and is 19.9 percent above August 2011. In the Midwest the index declined 2.6 percent to 95.0 in August but is also 19.9 percent higher than a year ago. Pending home sales in the South slipped 1.1 percent to an index of 110.4 in August but are 13.2 percent above August 2011. In the West, the index fell 7.2 percent in August to 102.5 and is 4.2 percent below a year ago, attributable, NAR said, to “broad inventory shortages.”
“The performance in month-to-month contract signings has been uneven with ongoing shortages of lower priced inventory in much of the country, and across most price ranges in the West,” according to NAR chief economist Lawrence Yun.
The index is based on a large national sample, representing about 20 percent of transactions for existing-home sales. An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales; it coincides with a level that is historically healthy.