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Quantitative Easing Explained

In her post 'QE2 is Not a Cruise Ship', Leslie Ebersole writes: "In the past few weeks I simply tried to nod intelligently when I heard "QE2". I tried to decipher the sound..."  

I'd call Leslies' post "Everything you always wanted to know about Quantitative Easing but could only begin to understand." I could not nod intelligently or otherwise when I heard about QE or QE2. Maybe YOU paid attention in Economics class. I never paid attention in Economics 101.... I did not pay attention in college or high school. The 'Quantitative Easing Explained' cartoon is more my speed when it comes to understanding Quantitative Easing. Please be aware one of the little bot voices says :

"are you _hitting me?"

if that would offend you, please do not watch the cartoon.


I suggested Leslie's "QE" post for a feature. Leslie's post got featured, other ActiveRain (a real estate network) members must have appreciated Leslie's post too and suggested it for a feature. I have read Leslie's post and re-read it. I will reread it and the links within it again. I have never commented on it... I can not even muster the online equivalent to nodding intelligently on this subject. I wish I would have paid attention in economics in school.

Candace Robinson an Arizona real estate agent shared the cartoon "Quantitative Easing Explained" on Facebook.

Thanks to Leslie for all the explanation about "Quantitative Easing" and for allowing it to be Re-Blogged. Thanks to Candace for the cartoon which may or may not be biased politically but helps me understand QE2 a bit better.

 

In the past few weeks I simply tried to nod intelligently when I heard "QE2". I tried to decipher the sound "keweeetoo" but didn't get anywhere. Then when I saw the acronym "QE2", I guessed that it had to with the idea of turning around a battleship because a cruise ship is as big as a battleship. What, if anything, does this have to do with the real estate market?

I read today on Bloomberg.com: "The worst financial crisis since the Great Depression has made sustained price declines, which makes consumers and businesses less willing to spend or invest, a bigger concern to the Fed than faster inflation. For policy makers, the way to spark inflation is to increase the supply of money in the economy by purchasing bonds."

Cruise ShipSo for my equally perplexed clients and friends, I am referring back to last week's blog post from Steve Harney and the KCM Crew. He and his company, Keeping Current Matters, do a great job explaining market trends and data to real estate agents, home buyer and sellers.

Read on if you'd like to stop fake nodding, too.

Quantative Easing and the Impact on Real Estate

by The KCM Crew on November 8, 2010 

The economy is still struggling. Employment numbers are not improving. The housing market is stagnant. The Federal Open Market Committee (FOMC) decided that a new form of stimulus was necessary to kick start the job market and the economy. They decided to ‘put more money’ into the market. The term for the new stimulus package is ‘quantitative easing’ (QE2).

We want to take a look at what happened, what it means to the economy and ultimately what impact it will have on the residential real estate market.

What Happened?

The Washington Post reported on the FOMC’s actions:

The FOMC decided this week that, with unemployment high and inflation very low, further support to the economy is needed. With short-term interest rates already about as low as they can go, the FOMC agreed to deliver that support by purchasing additional longer-term securities, as it did in 2008 and 2009. The FOMC intends to buy an additional $600 billion of longer-term Treasury securities by mid-2011 and will continue to reinvest repayments of principal on its holdings of securities, as it has been doing since August.

What Does This Mean for the Economy?

In the same article mentioned above, The Washington Post explained:

This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.

The Impact on Real Estate

Patrick F. Stone is president and CEO of Williston Financial Group, in an Inman News article, explained:

We have seen meaningful increases in commodity prices and stock prices in anticipation of QE2. With the implementation of QE2, and the hoped-for inflation, house prices will stabilize and — depending on the degree of impact and length of impact — housing inflation is a logical byproduct. Any meaningful housing appreciation will have a tremendously positive impact on the economy.

The U.S. News and World Report on their Money Blog addressed the issue of what opportunities now exist because of the FOMC action.

Interest rates have never been lower. It seems that just about every week mortgage rates set a new low. And this week the Fed is expected to undertake a second round of quantitative easing, QE2 for short, by buying up more government debt. As a result, incredibly low interest rates may go even lower.

But low rates don’t do us any good if we fail to take advantage of them.

The report went on to give the five ways one could take advantage of lower rates. Number one? Buy a home:

The combination of low rates and falling real estate prices make for a perfect time to buy a home. Particularly for first time buyers, there may never be a better time to take the plunge into homeownership than over the next year. Some say home values may still fall over the next year, so knowing exactly when to buy can be a bit of gamble. But locking in incredibly low rates on a 30-year mortgage is a great way to reap the benefits of the current interest rate environment.

Bottom Line

Interest rates will remain low and inflation will increase slowly if the Fed’s actions work as hoped.  After that, home prices will appreciate and interest rates without government intervention will return to historic norms. If you are looking to purchase, now is the time. If you can wait 12-18 months to sell, perhaps it makes sense to wait.

If you are looking to sell in the next several months, we don’t believe the impact of the government actions will take place within that time frame. Discuss your options with your real estate professional.

 

 

Search For Your Next Home Now!

 

          

          

 

This post was written by Leslie Ebersole of Baird & Warner Real Estate.

(630) 945-7935

leslie.ebersole@bairdwarner.com

    

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Comment balloon 6 commentsMaureen McCabe • November 19 2010 10:15AM

Comments

Great reblog, missed it the 1st time around Maureen. Thanks.

Posted by Lyn Sims, Schaumburg IL Real Estate (RE/MAX Suburban) almost 8 years ago

I was  fumbling with the drafts and edits while you commented.  The little cartoon is my speed.  I will reread the links in Leslie's post though, again.  

Posted by Maureen McCabe, Columbus Ohio Real Estate (HER Realtors) almost 8 years ago
Thanks Maureen, enjoyed the cartoon completely.
Posted by Jack Gilleland (Home Inspection and Investor Services, Clayton) almost 8 years ago

You are welcome....

Posted by Maureen McCabe, Columbus Ohio Real Estate (HER Realtors) almost 8 years ago

Maureen ... you should have had two disclaimers on the cartoon ... the one you did and one that warned that sipping coffee and watching the video is dangerous to your monitor ..... I'm wuth you ... I should of paid more attention in economics ... but, I think back then we just called it "new math ..."

Posted by Jack Mossman - The Nines Team at Keller Williams in Lodi, The Nines Team in Lodi (The Nines Team at Keller Williams in Lodi) almost 8 years ago

I put all liquids away when I see these videos. I tried doing one and failed but I really admire those who have done them. 

In my college econ class I wrote graffit on my desk... big lecture hall, Sorry U of W.  I would try to sit in that seat every time we had class though because I wrote "I love _______ __________" my boyfriend's name and I would visit the seat to see the responses. I could even tell you the first response.  His name was kinda scary.  Perhaps this was not simply graffiti or vandalism, perhaps it was very early social media.  For some reason I remember that was what I did in Econ even though I can not remember much econ or even who the professor was.  Or whether I took the class freshman or sophomore year.   A real estate friend from my office who retired recently was an Econ major at the University of Wisconsin before I was born.  When we'd discuss business and the economy I would remember what I remember of Economics at the University of Wisconsin.

Posted by Maureen McCabe, Columbus Ohio Real Estate (HER Realtors) almost 8 years ago

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