BOOM, Shock and Awe‼ Finally a move by the FED that is sure to heavily impact Las Vegas real estate market and economy and for the better.
The FED announced the Central Bank is prepared to purchase Treasuries for the first time since World War II by authorizing U.S. Treasury to print money, 1.2 Trillion dollars worth.
I said $1,250,000,000,000 dollars worth or 1,250,000 million dollars.
The Fed will buy as much as $300 billion in long-term Treasury notes and expand by $850 billion dollars an existing program to buy debt and securities issued by mortgage finance agencies such as Fannie Mae and Freddie Mac. This announcement immediately lowered the interest rates lenders charge to consumers and will free up capital to lend.
Additionally, the FED said it would consider expanding another $1 trillion program that is being rolled out this week that aims to boost the availability of consumer loans for cars, education and credit cards, as well as for small businesses.
Now see what the immediate reaction to the announcement was:
The dollar lost 1.3% against the euro and 1.7% against the Japanese yen from a day earlier and gold, silver, oil and other commodities rose. This is due to inflationary pressures that come from “printing money” and some of the most effective defenses against inflation are investment in commodities or real estate.
The following is from Daily RecKoning.com:
“Besides, all the bailouts and stimulus plans so far haven’t worked. And at least this latest plan makes a little more sense. The problem is debt, not liquidity. Buying up the securities of Fannie and Freddie, the Fed will lower the cost of mortgage debt. This will give homeowners an opportunity – probably the last one of their lifetimes – to refinance their houses at low interest rates. The target range…we’ve heard…is between 3% and 4%.
In the short run, if the homeowner is able to refinance at such low rates, he reduces his monthly cash-flow burden and frees up cash for other things (such as paying down his credit card debt). In the long run, if he’s able to lock-in those low rates, he will almost certainly see the debt burden itself significantly eased – thanks to rising inflation rates.
Lenders beware! U.S. Treasury bonds are attractive because they are safe. But they could turn out to be the riskiest safeguard in financial history. This is a moment when it is probably better to be a borrower than a lender. Refinance your house at 5% fixed rate. For the first few years, paying that mortgage may be as painful as marriage counseling. But then, when the marriage finally breaks up…and inflation heads to 10%… think how free and easy you’ll feel. In a few years, your mortgage will practically disappear.”
Las Vegas will benefit in two ways.
1: More money in the United States economy means more visitors to Las Vegas and will help our economy.
2: Cheap mortgages will eventually translate into price stabilization for Las Vegas homes, condos and commercial real estate, which should be followed by price appreciation as investing in real estate, would become a necessity in order to preserve wealth in an inflationary environment. When the inflation rears its head, and it invariably does when a government starts to print significant amounts of money and inject it into the economy, Las Vegas will be one of the best refuges an investor can find.
In residential real estate I believe that Las Vegas homes and condos are offering incredible values already and although commercial real estate will drop further, very good deals are starting to hit the market too.
The move by the FED is a game changer and its effect will be clear within a year.
By the way
Department of Housing and Urban Development (HUD) has released $72 million in federal grants to help fight the effects of foreclosure on Nevada.
The state of Nevada will receive more than $24 million; Clark County will get about $22 million. The cities of Las Vegas will get $14.7 million, North Las Vegas, $6.8 million and Henderson, $3.2 million for low income housing and help with rent for those who qualify.
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