Fed Finally Acknowledging the Housing Market Crisis and Their Inability to Fix It

 |  Includes: FMCC, FNMA, ITB, PKB, REZ, XHB
by: Richard Suttmeier

FOMC Says Slower Economic Growth Temporary - My concerns are about comments related to the construction industry as this is the key to economic growth on Main Street USA. The FOMC Statement says, "Investment in nonresidential structures is still weak and the housing sector continues to be depressed."

The committee will keep the federal funds rate at 0 to ¼ percent for an extended period. The $600 billion QE2 will be continued through month's end and the Fed will maintain its existing policy of reinvesting principal payments from its securities holdings, from both mortgage backed securities and U.S. Treasuries.

At Bernanke's press conference it became clear that the Fed is concerned about the housing market and the banking system. As I have been saying the key to an economic recovery and job creation is helping the housing market and cleaning up the community banks that are overexposed to commercial real estate loans.

The Federal Housing Finance Agency (FHFA) shows a house price rise of 0.8% in April, the first bump since May 2010. Year over year house prices are down 5.7% and down 19.3% from this index peak which occurred for Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) purchased homes in April 2007.

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The Housing Market for New Homes Is at a Standstill - New Home Sales fell 2.1% in May to an annual rate of just 319,000 units. The inventory of new homes is at a record low of 166,000. The price of a new home at $222,600 is down 3.4% year over year.

The bottom line is that the Federal Reserve is beginning to realize that the housing market depression exists and they have no idea how to fix it. The federal funds rate has been at 0 to 1/4 percent for two and a half years and the benefit of these low rates have not filtered down to Main Street USA. Consumers are having difficulty refinancing their mortgages, yet banks are charging citizens credit card interest rates above 20%. This is a travesty!

Disclosure: I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.