Things are not looking good on the housing front in the U.S. The latest figures show that prices slumped yet again in March, dragging the closely watched Case-Shiller index to its lowest point since the start of the downturn (see graph above).
Sure, there is still some distance to go before the housing bubble is completely burst, but any further drop in prices will be a drag on the economy as it widens the already dire "negative" equity situation for a large number of households.
Quantitative easing is a critical tool in maintaining a floor on housing prices because of its influence on the 10 year maturity yield. A large number of market participants including mortgages, pension funds and the good old dividend discount model (DDM) use it as a benchmark to set their rates. In other words, the latest housing price figures are likely to put additional pressure on the Fed to do something post QE2 which will end very soon.
Sure, there is still some distance to go before the housing bubble is completely burst, but any further drop in prices will be a drag on the economy as it widens the already dire "negative" equity situation for a large number of households.
Quantitative easing is a critical tool in maintaining a floor on housing prices because of its influence on the 10 year maturity yield. A large number of market participants including mortgages, pension funds and the good old dividend discount model (DDM) use it as a benchmark to set their rates. In other words, the latest housing price figures are likely to put additional pressure on the Fed to do something post QE2 which will end very soon.
