So right now the so-called median home price is $196,000, roughly back to 2004 levels. And it’s still about 60 percent higher than ten years ago. (Studies show homeowners generally don’t sell for about a decade, so I use ten years as the comparison.) But here’s where Gentle Ben comes in. A $196,000 home and a 10 percent equity down payment leaves $176,000 to be financed, perhaps with an adjustable-rate mortgage. And since the Fed slashed its target rate and LIBOR rates dropped roughly in sync, the owner of this median-price home is now saving $300 a month compared to last summer, or about $3,600 a year.
That’s a big rebate from the Fed. It’s about three-times bigger than what Uncle Sam is promising. The official IRS notice says the average married couple filing jointly may get $1,200. But Fed head Bernanke is giving median homeowners $2,400 more than that amount. A lot better, right?
Incidentally, all of Bernanke’s emergency machinations to fight the recession in housing and housing-related credit are starting to show very positive effects. Along with various new schemes to backstop the banking system and provide short-term lending help to banks and broker-dealers, many on Wall Street are coming around to the view that something called “systemic risk” is being reduced in the financial world. That includes all those lousy sub-prime securitized mortgages, along with various buyout loans and nasty things like collateralized debt obligations. Sharp-eyed Wall Street analyst Dick Bove puts it quite simply: The worst of the financial crisis may well be behind us.
This, in turn, has caused a big rally in stocks. On top of that, the value of the dollar on foreign-exchange markets is beginning to go up and the price of gold has plunged nearly $100. All this has moved longtime inflation bear Donald Luskin to suggest that the worst of the future-inflation threat may now be over.
So you know what? Let’s give this guy Bernanke a little credit. I think I may make him my new best friend.