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Bernanke: Buy a House
Cramer has been calling for 4% mortgage and refinancing interest rates as a solution to the housing crisis. Regular watchers of Mad Money know this. He figured it was the best way to entice buyers back into the market and at last put a stop to the dramatic fall in home prices.
Was Federal Reserve Chairman Ben Bernanke listening? He seemed to be, given Wednesday’s announcement. The central bank announced its intention to purchase as much as $300 billion in long-term government bonds, a move designed specifically to lower interest rates and encourage banks to lend again.
And Bernanke said he’d buy as much as $1.25 trillion in mortgage-backed securities guaranteed by Fannie Mae [FNM
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] and Freddie Mac [FRE
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], which would bring stability to a market at ground zero of this financial crisis.
The Fed also plans to keep the federal funds rate between a range of 0% and 0.25% for the foreseeable future. Cramer saw that as further proof of Bernanke’s commitment to get the U.S. economy back on its feet. Apparently the markets agreed. The Dow rallied after the announcement and closed the day up 91 points.
That might be only the beginning of the market’s general trend higher going forward. Now the very toxic bonds that so damaged banks’ balance sheets aren’t so toxic anymore. The removal of that key problem offers much-needed relief in the financial sector. With the uptick rule being reinstated, which will keep short sellers from wreaking further havoc, and maybe even the dissolution of ultra-short ETFs (should the SEC answer Cramer’s call to action), the 50% rally in the banks could very well continue.
That’s why Cramer urged homeowners to refinance their mortgages and potential homebuyers to seek loan pre-approval as soon as possible. He even called on hedge funds to take advantage of the Fed’s Term Asset-Backed Securities Loan Facility and borrow enough money to buy up that discounted asset-backed paper. Ben Bernanke is on board, it appears, and that means any signs of a recover are real.
Of course, there will be naysayers. You’ll hear about how Bernanke’s move will weaken the dollar and the Fed has gone too far, that it’s bringing a nuclear bomb to a knife fight. Cramer disagreed. A weaker dollar helps our imports, he said, and it’s better to be overly cautious than not. Besides, the chatter will most likely come from short sellers, the bear raiders that drove Bear Stearns and Lehman Brothers into extinction. So we all know where their interests lie.
Look, Fannie Mae is raising its conforming rate to more than $700,000. We got the low interest rates we need to refinance. Buyers are ready to enter the market. More apartments than houses are being built. And Toll Brothers [TOL
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], Lennar [LEN
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], Pulte Homes [PHM
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], DR Horton [DHI
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] and Centex [CTX
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] won’t be able to build enough to meet the demand anyway with those new rates. All the right things are happening, Cramer said, to save the housing market.
So maybe, just maybe, his prediction that housing prices would bottom by June 30 might be true. It seems at least that the Federal Reserve is pushing for it.
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