Federal Reserve Minutes and Bernanke Testimony: Concerns About Housing

Key Paragraphs from the Fed Minutes:

Activity in the housing market remained depressed, as both weak demand and the sizable inventory of foreclosed or distressed properties continued to hold back new construction. Starts and permits of new single-family homes were essentially unchanged in April and May, and they stayed near the very low levels seen since the middle of last year. Sales of new and existing homes remained at subdued levels in recent months, while measures of home prices fell further.

Commercial mortgage markets continued to show tentative signs of stabilization. In recent months, delinquency rates for commercial real estate loans edged down from their previous peaks. However, commercial real estate markets remained weak. Property sales were tepid, and prices remained at depressed levels. Issuance of commercial mortgage-backed securities slowed somewhat in the second quarter.

Conditions in residential mortgage markets were little changed overall but remained strained. Rates on conforming fixed-rate residential mortgages declined about in line with 10-year Treasury yields over the inter-meeting period. Mortgage refinancing activity picked up, on net, over the inter-meeting period but was still relatively subdued. Outstanding residential mortgage debt contracted further in the first quarter. Rates of serious delinquency for subprime and prime mortgages were little changed at elevated levels. The rate of new delinquencies on prime mortgages ticked up in April but remained well below the level of a few months ago. In March and April, delinquencies on mortgages backed by the Federal Housing Administration declined noticeably.

Solving the housing depression and real estate lending issues are the keys to economic growth.

Federal Reserve Chairman Ben Bernanke's hints of the possible need for additional monetary policy support as economic weakness may prove to be more persistent than expected, and that deflationary risks might re-emerge.

If we have a QE3, Wall Street benefits though currency and commodity speculation, while Main Street suffers with a further rise in the cost of living, particularly for food and fuel. How does this resolve the Housing Depression?

On another matter, why do we need a Debt Ceiling? The United States will spend whatever it takes given a natural disaster anywhere in the World. The dollar is the medium of exchange, and we already are well above the so-called Debt Ceiling.

If the Federal Reserve is lender of last resort they should be able to lend money to the U.S. Treasury in return for the mortgage-backed securities owned as collateral.

Another point no one is discussing. The U.S. government is guaranteeing the debt and mortgage securities of Fannie and Freddie under Conservatorship. That already puts us $6.5 trillion above the debt ceiling.

Let’s fund the government off balance sheet by issuing more Fannie and Freddie debt. LOL

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