A Great Day for Real Estate

Yesterday The Federal Reserve indicated that it would buy up to $300B of US Treasury 30 year bonds over the next 6 months with the express purpose of driving the 30 year mortgage below 5%. In addition, the Federal Reserve will purchase an additional $750B of Fannie and Freddie Mac debt, on top of the already announced $500B of purchases. The total stimulus ($750B +$500B+300B) is $1.55Trillion dollars.

Unlike actions up to now that have been centered on the financial markets and done little for real estate, these efforts are directly targeting the real estate market. By purchasing the mortgages in the secondary market to the tune of $1.2 Trillion dollars the Fed will dramatically increase liquidity in those markets.

Housing affordability is at an all time high. Interest rates are low. It is a great time to buy real estate. If inflation rises, then all the component parts of real estate rise, too, i.e. the wood, the oil, the steel, aluminum, copper, plastics, etc. They make up real estate.

Real Estate is inflation in effect. Because the underlying components of real estate rise with inflation the cost of replacing a home rises and with it the value of resale property.