Dick Bove’s Winter Mortgage Forecast

Dick Bove's Mortgage Guesses

Dick Bove’s Mortgage Guesses

Forecasts aren’t just for weather.  In the fall of 2014 there were predictions in the media calling for some “bad weather” regarding the housing market.

Financial analyst Dick Bove stated that a housing crash preceded by a mortgage crash was headed our way in the winter of 2014.  In short, it was a bit sensational.  I speculated the purpose behind his “forcast” was to generate hype.  Therefore, such hype could help him sell more copies of his newsletter and services.  A little fear marketing can net some big profits.

The primary reasons behind Bove’s prediction:

  1.  The Fed terminating their Quantitative Easing Program (the program that has pushed mortgage rates down)
  2.  The Fed unwinding Fannie and Freddie making mortgage money more unavailable and more expensive

Both of these reasons were irrelevant at that point.  These above mentioned factors would not directly impact our Mortgage/Real Estate markets in the winter of 2014.  Here is why:

I. Why The Fed Ending QUANTITATIVE EASING Will Not Hurt

Interestingly, the Fed had been backing out of their Quantitative Easing program for months.  Furthermore, it got to the point of being down to purchasing only $10 billion per month.   Now by their current pace at $85 billion per month, this was not a lot.  By this time the program was virtually over as the Fed is currently purchasing a little over 10% of what they initially were.  If a roughly 90% drop did not hurt rates why would we expect the final 10% will?

This is precisely why this theory was largely refuted.  Consequently, the less they buy would have the opposite effect.  However, the impact the unwinding of Quantitative Easing has had on rates has been very minimal.  Some would argue that there had been no impact over the rest of 2014.  The yield on the securities the Fed had been buying was higher/better than many countries outside the US.   In turn making our securities a hot buy and the result helps keep mortgage rates low.  In order for global yields to shift pulling demand from our securities, the whole world would need to move yields virtually simultaneously which was unlikely.

II. Why Fannie and Freddie Unwinding Will Not Hurt

The goal was clearly to unwind Fannie and Freddie Mac, however, that was not going to happen by the end of 2014.  In fact, it will most likely not happen for the next 5, 6 or 7 Christmases!   Not a big impact as far as the eye can see as of today.

At this point it’s hard to find a lot of traction in Bove’s statements.  However, if you want to buy his newsletter anyway here is a link 😉  http://www.fiercefinanceit.com/tags/richard-bove

Here are 2 additional links to 2 of the Bove 2014 “forcasts” that caused a stir in media:

National Real Estate Post

By Jeremy House

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