Housing Bubble to Interest Rate Puddle

As the financial news was celebrating a turn-around in the economy I thought I might be seeing some positive changes in the real estate world.
Supply and demand improved: the number of residential offices in King Country fell by almost half since the top of the market in 2006. Great news for those of us still in business.
The incidence of falling-asleep-on-Open House-sofas declined drastically. People spent some of their precious week-ends to look at homes again and not just to sniff out their neighbors inferior interiors. The interest in maybe buying was palpable.
Interest rates were a huge lure. I mean, 4 1/2 % on the way to 4%! No points!! Folks who would not normally consider a second home or rental house were crunching the numbers. What with rental rates beginning to rise and vacation home prices to fall, not to mention the fuzzy noises coming from the Fed, how could you lose.

In July Ben Bernanke was painting a picture of an economy expanding at a moderate rate, consumer spending rising 2% , jobs $ housing still a bit worrisome. The Fed was going to prevent inflation by getting ready tools to drain the excesses from the system, including asset sales and reverse purchases.
Those green shoots were coming up roses. The turnaround was right around the corner.
And what a turn around it was. In August Mr Bernanke talks about another stimulus program. All of a sudden the economy was bad enough to need another shot of strong meds. What had happened for the Fed to change its mind?? Who knows? The foreclosure mess finally breaking?
Who cares? The stock market goes up. Speculation about how much money will fly out of the magical Fed Bubble Machine goes on for two months. Maybe one, maybe two trillion, maybe the beginning of more rounds of Fed stimulus.
The market goes wild. Everything is up, commodities from coffee to cotton, gold, emerging and emerged markets. Even bond prices go up. If the Fed is going to buy Treasuries, bond prices will rise, so investors get in there first.
November 4th the program is announced: $600 billion in short to mid term Treasuries plus the reinvestment of the earnings from Mortgage Bonds. Everyone is off to the races. And then a funny thing happens.
Bond prices start to fall. When the price paid for the bond goes down, the interest rate the bonds yield goes up. At the long end, the 30 year Treasury yield on Nov 4 was 4.06 % ; on Nov 12 – 4.29%. Doesn’t sound like much, $35 a month on a $250,000 loan. But if this is a new trend, and if interest rates rise on the 10 year Treasuries, we can expect mortgage rates to go up.
This will be very bad for housing prices, bad for owners with ARM mortgages, and bad for first time buyers qualifying for their first mortgages. It will be good for the banks, however, as there will be a larger spread between what they can borrow and what they can lend out at.
The Big Question remains - WHY would prices of bonds go down when the Fed has been advertising far and wide for months that they are going to buy on the order of $100 billion a month?
Maybe because foreign buyers aren’t coming to the Treasury auctions. Maybe the bond holders are selling more than the Fed is buying. Maybe they're wondering who will be buying when the Fed is done. Who would be buying unless interest rates go up enough to justify the risk of bond prices falling further?
And just when I though I had lots of good news to bring to my blog, the landscape shifts.
Interest rates may return to their 4-41/2 % range. Most often buyers sitting on the fence will jump off if they fear interest rates will rise. We will see if this time it is going to be different.