This week has seen a flurry of activity, whose analysis is not looking positive for the housing Market. 

On Friday:

The latest report from PIMCO (the world’s largest fixed income management company), is that Mortgage Back Securities have been under pressure, loosing value as the Fed threatens a tapering down of Quantitative Easing (QE).

In addition, news came out on Friday that Fannie Mae and Freddie Mac are considering reduction in loan limits. 

So let’s analyze- PIMCO is de-facto saying that the returns on Mortgage Backed Securities are not enough for them to keep their value.  What this is really saying to Banks, The Fed, and anyone who makes, buys, or sells Mortgage Backed Securities id that if you want full value for your mortgages on the secondary market, you must pay us a higher rate – I don’t think the benevolent originator will pay this difference in actual and expected interest rate.  Therefore, rates are going up to satisfy investor demand.

Secondly, Fannie Mae and Freddy Mac are saying that they will stop lending to a certain threshold, so buyers in higher prices areas (i.e. - areas where values have skyrocketed) will either have to come in with a higher down payment or look to buy something cheaper.

Therefore, rates are going up and loan amounts are going down.  What do you think this will do to the real estate market?