Posted by Dawn Knowles, REALTOR with RE/MAX Realty Affiliates
The manager of the world’s largest bond fund predicted Monday that the Federal Reserve “cannot afford” to let U.S. housing prices fall and will have to cut interest rates aggressively to prevent it from happening.
“A Fed cannot afford to let homes go down by 10 to 15 percent like we saw in Japan,” Bill Gross, chief investment officer of Pacific Investment Management Co., said on CNBC Television. “We’ve only begun to see the pain from the standpoint of the home owner in terms of those monthly payments. Defaults and delinquencies will increase as we extend throughout 2007 and then into 2008.”
Gross expects the Fed to cut the federal funds short-term rate to 3.5 percent, which implies that the 30-year mortgage rates will come down to 5 percent to 5.5 percent.
Source: Reuters News (11/05/07)