buying now or waiting another year?

[Anonymous]

Keep scrolling. The original comment was:
“Let’s say you end up losing 100k on the house whenever you sell it.”.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:If you buy in the next couple of months you will be being buying at the worst possible point since 2007. If you are comfortable with that, that’s up to you, but I would ask what is so urgent that you can’t wait 6 or 12 months? The people who are telling you to buy now, that it will be fine, are realtors who have a personal financial stake in keeping the inflated market going for as long as possible. These are salespeople. Talk to a market forecaster who has nothing to gain from you losing money on a purchase. Read about what’s going on in the larger market, what the rising interest rates will do to prices, what the Fed is doing and predicting. Don’t listen to salespeople.

Incidentally, the people who said don’t buy last year were also right. People who bought in 2021 will take a financial beating too during the downturn. Just not as bad a beating as the people buying now. In a few weeks it’s expected their houses will be worth whatever it’s valuation in 2019 was. They didn’t buy at the absolute peak (which was probably last week) but they still paid a premium they won’t be able to recover anytime soon. Talk to someone in your real life who understands market behavior. Don’t take anonymous advice from a bunch of realtors on the internet.

The notion that everyone who disagreed with your position is a realtor is as lazy as it is baseless. It's the equivalent of suggesting that the every person promoting a doom and gloom scenario is really a frustrated buyer who is just trying to chill others from entering or continuing their house hunt in the hope that it will lessen competition so they can finally win a bidding war. That sounds pretty silly, right? Same thing. This is a complicated area, and people come to different conclusions based on looking at and interpreting different data. If the only way you can argue your position is to suggest that anyone who disagrees with it has a vested interest in the other outcome, that speaks volumes.

It’s true about 99% of the time that the people saying “buy now” are realtors. Because it’s insane advice unless your job is to sell houses. And the corresponding situation that you propose makes literally no sense: no one on this board is competing against other posters for a given house. People are posting about areas all over the DMV and in a huge array of price ranges. These people are not competing over the same houses. People like me, who did a deep dive into the 2007 crisis for professional reasons and as a result have some expertise are just trying to help other people understand what’s going on. I’m just trying to counter all the misinformation that’s out there, because many people don’t realize that most of what’s said on this board is just salesmanship. Like when realtors post “Amazing new house! Will sell fast” many people don’t understand that’s just an ad for the house posted by the listing agent. I’m just trying to level the informational playing field so people aren’t duped into losing money they can’t afford to lose. What they do with that information is up to them, but educating people (especially people who don’t have an extra $100,000 laying around to lose) is just basic human decency.

My other ulterior motive is trying to prevent a local housing crash by preparing people to expect a downturn but not to panic. Because that would be bad for everyone who doesn’t think a giant recession is in their personal interest right now (i.e. everyone). I’m personally only going to buy when fundamentals seem to be back at the core of pricing, and I feel tremendous relief that I didn’t buy early this year (when I was really trying) before I knew how much risk the Fed was about to inject into the market. I feel grateful to be living in a good spot for right now, especially because we require flexibility and can’t necessarily stay in one house for 10 years. Others may be in a different circumstance, but they still deserve to under the full picture of what’s happening (both on this board and in the local and National markets).

I don’t mean to be insulting or disparaging by pointing out the realtor posts. I actually super love my realtor and have nothing but respect for my realtor. If I were to buy a house right now it would partly be because of how much I like and respect my specific realtor. So it’s not about the profession, it’s about misinformation that is self interested and might cause people to make a giant financial mistake.

So…frustrated (and inexperienced) buyer. Got it.

Sigh. There must be a human being in there somewhere. Try to access the part of you that isn’t on a team, and is just a human person. I’m not a buyer, not inexperienced, and I promise you I know more about how property markets work than you do.

[Anonymous]

Anonymous wrote:

Anonymous wrote:If you buy in the next couple of months you will be being buying at the worst possible point since 2007. If you are comfortable with that, that’s up to you, but I would ask what is so urgent that you can’t wait 6 or 12 months? The people who are telling you to buy now, that it will be fine, are realtors who have a personal financial stake in keeping the inflated market going for as long as possible. These are salespeople. Talk to a market forecaster who has nothing to gain from you losing money on a purchase. Read about what’s going on in the larger market, what the rising interest rates will do to prices, what the Fed is doing and predicting. Don’t listen to salespeople.

Incidentally, the people who said don’t buy last year were also right. People who bought in 2021 will take a financial beating too during the downturn. Just not as bad a beating as the people buying now. In a few weeks it’s expected their houses will be worth whatever it’s valuation in 2019 was. They didn’t buy at the absolute peak (which was probably last week) but they still paid a premium they won’t be able to recover anytime soon. Talk to someone in your real life who understands market behavior. Don’t take anonymous advice from a bunch of realtors on the internet.

A few weeks? Great! Fastest market crash in history!

Lol exactly. These people are nuts.
6-12 months will have little impact on the DC market.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:If you buy in the next couple of months you will be being buying at the worst possible point since 2007. If you are comfortable with that, that’s up to you, but I would ask what is so urgent that you can’t wait 6 or 12 months? The people who are telling you to buy now, that it will be fine, are realtors who have a personal financial stake in keeping the inflated market going for as long as possible. These are salespeople. Talk to a market forecaster who has nothing to gain from you losing money on a purchase. Read about what’s going on in the larger market, what the rising interest rates will do to prices, what the Fed is doing and predicting. Don’t listen to salespeople.

Incidentally, the people who said don’t buy last year were also right. People who bought in 2021 will take a financial beating too during the downturn. Just not as bad a beating as the people buying now. In a few weeks it’s expected their houses will be worth whatever it’s valuation in 2019 was. They didn’t buy at the absolute peak (which was probably last week) but they still paid a premium they won’t be able to recover anytime soon. Talk to someone in your real life who understands market behavior. Don’t take anonymous advice from a bunch of realtors on the internet.

The notion that everyone who disagreed with your position is a realtor is as lazy as it is baseless. It's the equivalent of suggesting that the every person promoting a doom and gloom scenario is really a frustrated buyer who is just trying to chill others from entering or continuing their house hunt in the hope that it will lessen competition so they can finally win a bidding war. That sounds pretty silly, right? Same thing. This is a complicated area, and people come to different conclusions based on looking at and interpreting different data. If the only way you can argue your position is to suggest that anyone who disagrees with it has a vested interest in the other outcome, that speaks volumes.

It’s true about 99% of the time that the people saying “buy now” are realtors. Because it’s insane advice unless your job is to sell houses. And the corresponding situation that you propose makes literally no sense: no one on this board is competing against other posters for a given house. People are posting about areas all over the DMV and in a huge array of price ranges. These people are not competing over the same houses. People like me, who did a deep dive into the 2007 crisis for professional reasons and as a result have some expertise are just trying to help other people understand what’s going on. I’m just trying to counter all the misinformation that’s out there, because many people don’t realize that most of what’s said on this board is just salesmanship. Like when realtors post “Amazing new house! Will sell fast” many people don’t understand that’s just an ad for the house posted by the listing agent. I’m just trying to level the informational playing field so people aren’t duped into losing money they can’t afford to lose. What they do with that information is up to them, but educating people (especially people who don’t have an extra $100,000 laying around to lose) is just basic human decency.

My other ulterior motive is trying to prevent a local housing crash by preparing people to expect a downturn but not to panic. Because that would be bad for everyone who doesn’t think a giant recession is in their personal interest right now (i.e. everyone). I’m personally only going to buy when fundamentals seem to be back at the core of pricing, and I feel tremendous relief that I didn’t buy early this year (when I was really trying) before I knew how much risk the Fed was about to inject into the market. I feel grateful to be living in a good spot for right now, especially because we require flexibility and can’t necessarily stay in one house for 10 years. Others may be in a different circumstance, but they still deserve to under the full picture of what’s happening (both on this board and in the local and National markets).

I don’t mean to be insulting or disparaging by pointing out the realtor posts. I actually super love my realtor and have nothing but respect for my realtor. If I were to buy a house right now it would partly be because of how much I like and respect my specific realtor. So it’s not about the profession, it’s about misinformation that is self interested and might cause people to make a giant financial mistake.

So…frustrated (and inexperienced) buyer. Got it.

Sigh. There must be a human being in there somewhere. Try to access the part of you that isn’t on a team, and is just a human person. I’m not a buyer, not inexperienced, and I promise you I know more about how property markets work than you do.

“I feel tremendous relief that I didn’t buy early this year (when I was really trying)”
So you were a buyer or weren’t you?

Why do you assume you know more? Your posts read like you are clueless.

[Anonymous]

Anonymous wrote:You buy when you see something you like that’s reasonably in your budget. Planning to stay longer-term can insulate you from overpaying in a desirable area of the DMV. So if you’re looking for a house that will work for the next 7-10 years, I wouldn’t worry too much. Does that make sense?

This. Good luck!

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:If you buy in the next couple of months you will be being buying at the worst possible point since 2007. If you are comfortable with that, that’s up to you, but I would ask what is so urgent that you can’t wait 6 or 12 months? The people who are telling you to buy now, that it will be fine, are realtors who have a personal financial stake in keeping the inflated market going for as long as possible. These are salespeople. Talk to a market forecaster who has nothing to gain from you losing money on a purchase. Read about what’s going on in the larger market, what the rising interest rates will do to prices, what the Fed is doing and predicting. Don’t listen to salespeople.

Incidentally, the people who said don’t buy last year were also right. People who bought in 2021 will take a financial beating too during the downturn. Just not as bad a beating as the people buying now. In a few weeks it’s expected their houses will be worth whatever it’s valuation in 2019 was. They didn’t buy at the absolute peak (which was probably last week) but they still paid a premium they won’t be able to recover anytime soon. Talk to someone in your real life who understands market behavior. Don’t take anonymous advice from a bunch of realtors on the internet.

The notion that everyone who disagreed with your position is a realtor is as lazy as it is baseless. It's the equivalent of suggesting that the every person promoting a doom and gloom scenario is really a frustrated buyer who is just trying to chill others from entering or continuing their house hunt in the hope that it will lessen competition so they can finally win a bidding war. That sounds pretty silly, right? Same thing. This is a complicated area, and people come to different conclusions based on looking at and interpreting different data. If the only way you can argue your position is to suggest that anyone who disagrees with it has a vested interest in the other outcome, that speaks volumes.

It’s true about 99% of the time that the people saying “buy now” are realtors. Because it’s insane advice unless your job is to sell houses. And the corresponding situation that you propose makes literally no sense: no one on this board is competing against other posters for a given house. People are posting about areas all over the DMV and in a huge array of price ranges. These people are not competing over the same houses. People like me, who did a deep dive into the 2007 crisis for professional reasons and as a result have some expertise are just trying to help other people understand what’s going on. I’m just trying to counter all the misinformation that’s out there, because many people don’t realize that most of what’s said on this board is just salesmanship. Like when realtors post “Amazing new house! Will sell fast” many people don’t understand that’s just an ad for the house posted by the listing agent. I’m just trying to level the informational playing field so people aren’t duped into losing money they can’t afford to lose. What they do with that information is up to them, but educating people (especially people who don’t have an extra $100,000 laying around to lose) is just basic human decency.

My other ulterior motive is trying to prevent a local housing crash by preparing people to expect a downturn but not to panic. Because that would be bad for everyone who doesn’t think a giant recession is in their personal interest right now (i.e. everyone). I’m personally only going to buy when fundamentals seem to be back at the core of pricing, and I feel tremendous relief that I didn’t buy early this year (when I was really trying) before I knew how much risk the Fed was about to inject into the market. I feel grateful to be living in a good spot for right now, especially because we require flexibility and can’t necessarily stay in one house for 10 years. Others may be in a different circumstance, but they still deserve to under the full picture of what’s happening (both on this board and in the local and National markets).

I don’t mean to be insulting or disparaging by pointing out the realtor posts. I actually super love my realtor and have nothing but respect for my realtor. If I were to buy a house right now it would partly be because of how much I like and respect my specific realtor. So it’s not about the profession, it’s about misinformation that is self interested and might cause people to make a giant financial mistake.

So…frustrated (and inexperienced) buyer. Got it.

Sigh. There must be a human being in there somewhere. Try to access the part of you that isn’t on a team, and is just a human person. I’m not a buyer, not inexperienced, and I promise you I know more about how property markets work than you do.

“I feel tremendous relief that I didn’t buy early this year (when I was really trying)”
So you were a buyer or weren’t you?

Why do you assume you know more? Your posts read like you are clueless.

So “earlier this year” means… a month ago?

And why are your relieved? Prices haven’t dropped, rates have risen. Sure talk of a bubble has percolated, but in no way has your situation IMPROVED if you are still renting.

[Anonymous]

Anonymous wrote:The most likely scenario for close-in desirable DC neighborhoods is that nominal prices may stagnate—not fall and certainly not crash—over the next few years. They will fall, however, in real terms.

This person is getting closer to the truth. I don't actually think real prices will fall; it's more likely that appreciation will gradually slow over the next year and then that real prices will stay flat for a few years. Nominal home prices will almost certainly not fall. But this PP is right; if you're not thinking about how inflation works in this scenario, you're not taking the question seriously.

Inflation is 7%, which means that real interest rates are still quite negative (you can pay 5% interest to buy a typical asset now or you can hold cash for a year for the privilege of paying 7% more for the same asset). So, even with factoring in for some depreciation, it still makes sense to borrow heavily in order to purchase durable assets for which the new value will appreciate at or above the rate of inflation. In fact, because inflation has risen faster than interest rates, real interest rates are now quite a bit lower than they were at the beginning of the pandemic.

Of course, inflation probably won't stay this high, since some of the supply shock issues associated with the pandemic will start to abate and since interest rates are rising quickly. Housing averages about 30% of household expenditure and so it makes up about 30% of CPI, although it's calculated based on imputed rent, not on home prices themselves. But, for that reason, it's difficult for the cost of housing and inflation indicators to diverge greatly for very long. If the inflation rate falls significantly, then by construction the rate of home price appreciation is almost certainly falling, and vice versa.

To the extent that the Fed controls interest rates indirectly, they want to slow down home price appreciation because they want to rein in inflation overall. But they also really don't want nominal home prices to fall, because that can set off a very costly credit market spiral as in 2008. Since the Fed's toolkit has been greatly expanded to include rapid asset purchases, they can basically guarantee that even if they overshoot on interest rates, nominal home prices won't fall substantially at a national level. The potential cost of this kind of backstop is that they may not be able to bring down overall inflation as much as they would like to. So, you would end up with something more akin to the stagflation of the 1970s; very high interest rates yielding low economic growth, but still substantial inflation. No fall in nominal home prices, though.

The more likely scenario is that we don't hit any such backstop. Inflation falls due to rising interest rates, and real home price appreciation falls with it. Since durable goods like houses are more sensitive to changes in interest rates than non-durables, real home prices fall. But nominal home prices don't fall. If they started to, then the Fed would just resume asset purchases to backstop the credit markets. Guaranteed asset purchases are a much faster acting tool than interest rates, so even though the Fed's interest rate hikes course through the economy over months, the backstop is pretty firm.

It's also still very possible that the Fed engineers a "soft landing." If interest rates don't rise too quickly, then real home prices could stay flat or even rise slowly. This is what a return to 2% inflation and 3% home appreciation would look like. Modern monetary policy hasn't operated in the aftermath of a pandemic before, so it's hard to know how well some of the Fed's decisions will play out in this regard. But, this is the outcome that the Fed is currently aiming for.

So, is it possible that your house could be a relatively poor investment over some period of time? Sure (although you also need to take into account imputed rent, leverage, and favorable tax treatments to do that comparison). But it's still very unlikely that home prices will fall in nominal terms, which means that getting stuck with an underwater mortgage or being unable to sell your house is still not something that you should be concerned about.

PS: The person claiming that the market will drop 20% in the next three weeks, the person comparing other posters to Putin for disagreeing, the person posting in mIxEd CaSE, these are not serious people.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:If you buy in the next couple of months you will be being buying at the worst possible point since 2007. If you are comfortable with that, that’s up to you, but I would ask what is so urgent that you can’t wait 6 or 12 months? The people who are telling you to buy now, that it will be fine, are realtors who have a personal financial stake in keeping the inflated market going for as long as possible. These are salespeople. Talk to a market forecaster who has nothing to gain from you losing money on a purchase. Read about what’s going on in the larger market, what the rising interest rates will do to prices, what the Fed is doing and predicting. Don’t listen to salespeople.

Incidentally, the people who said don’t buy last year were also right. People who bought in 2021 will take a financial beating too during the downturn. Just not as bad a beating as the people buying now. In a few weeks it’s expected their houses will be worth whatever it’s valuation in 2019 was. They didn’t buy at the absolute peak (which was probably last week) but they still paid a premium they won’t be able to recover anytime soon. Talk to someone in your real life who understands market behavior. Don’t take anonymous advice from a bunch of realtors on the internet.

The notion that everyone who disagreed with your position is a realtor is as lazy as it is baseless. It's the equivalent of suggesting that the every person promoting a doom and gloom scenario is really a frustrated buyer who is just trying to chill others from entering or continuing their house hunt in the hope that it will lessen competition so they can finally win a bidding war. That sounds pretty silly, right? Same thing. This is a complicated area, and people come to different conclusions based on looking at and interpreting different data. If the only way you can argue your position is to suggest that anyone who disagrees with it has a vested interest in the other outcome, that speaks volumes.

It’s true about 99% of the time that the people saying “buy now” are realtors. Because it’s insane advice unless your job is to sell houses. And the corresponding situation that you propose makes literally no sense: no one on this board is competing against other posters for a given house. People are posting about areas all over the DMV and in a huge array of price ranges. These people are not competing over the same houses. People like me, who did a deep dive into the 2007 crisis for professional reasons and as a result have some expertise are just trying to help other people understand what’s going on. I’m just trying to counter all the misinformation that’s out there, because many people don’t realize that most of what’s said on this board is just salesmanship. Like when realtors post “Amazing new house! Will sell fast” many people don’t understand that’s just an ad for the house posted by the listing agent. I’m just trying to level the informational playing field so people aren’t duped into losing money they can’t afford to lose. What they do with that information is up to them, but educating people (especially people who don’t have an extra $100,000 laying around to lose) is just basic human decency.

My other ulterior motive is trying to prevent a local housing crash by preparing people to expect a downturn but not to panic. Because that would be bad for everyone who doesn’t think a giant recession is in their personal interest right now (i.e. everyone). I’m personally only going to buy when fundamentals seem to be back at the core of pricing, and I feel tremendous relief that I didn’t buy early this year (when I was really trying) before I knew how much risk the Fed was about to inject into the market. I feel grateful to be living in a good spot for right now, especially because we require flexibility and can’t necessarily stay in one house for 10 years. Others may be in a different circumstance, but they still deserve to under the full picture of what’s happening (both on this board and in the local and National markets).

I don’t mean to be insulting or disparaging by pointing out the realtor posts. I actually super love my realtor and have nothing but respect for my realtor. If I were to buy a house right now it would partly be because of how much I like and respect my specific realtor. So it’s not about the profession, it’s about misinformation that is self interested and might cause people to make a giant financial mistake.

You double down on this nonsense? You really think that someone who has disagrees with you just has ot have a vested professional interest in what happens? Come on. That's really a stunning combination of lack of critical thinking skills and egotism. While you profess great professional expertise, you undercut any chance that someone might believe you (which on an anonymous message board, is not much in the first place) by repeating unknowable and unprovable assertions as the gospel according to some rando on DCUM.

[Anonymous]

Anonymous wrote:

Anonymous wrote:The most likely scenario for close-in desirable DC neighborhoods is that nominal prices may stagnate—not fall and certainly not crash—over the next few years. They will fall, however, in real terms.

This person is getting closer to the truth. I don't actually think real prices will fall; it's more likely that appreciation will gradually slow over the next year and then that real prices will stay flat for a few years. Nominal home prices will almost certainly not fall. But this PP is right; if you're not thinking about how inflation works in this scenario, you're not taking the question seriously.

Inflation is 7%, which means that real interest rates are still quite negative (you can pay 5% interest to buy a typical asset now or you can hold cash for a year for the privilege of paying 7% more for the same asset). So, even with factoring in for some depreciation, it still makes sense to borrow heavily in order to purchase durable assets for which the new value will appreciate at or above the rate of inflation. In fact, because inflation has risen faster than interest rates, real interest rates are now quite a bit lower than they were at the beginning of the pandemic.

Of course, inflation probably won't stay this high, since some of the supply shock issues associated with the pandemic will start to abate and since interest rates are rising quickly. Housing averages about 30% of household expenditure and so it makes up about 30% of CPI, although it's calculated based on imputed rent, not on home prices themselves. But, for that reason, it's difficult for the cost of housing and inflation indicators to diverge greatly for very long. If the inflation rate falls significantly, then by construction the rate of home price appreciation is almost certainly falling, and vice versa.

To the extent that the Fed controls interest rates indirectly, they want to slow down home price appreciation because they want to rein in inflation overall. But they also really don't want nominal home prices to fall, because that can set off a very costly credit market spiral as in 2008. Since the Fed's toolkit has been greatly expanded to include rapid asset purchases, they can basically guarantee that even if they overshoot on interest rates, nominal home prices won't fall substantially at a national level. The potential cost of this kind of backstop is that they may not be able to bring down overall inflation as much as they would like to. So, you would end up with something more akin to the stagflation of the 1970s; very high interest rates yielding low economic growth, but still substantial inflation. No fall in nominal home prices, though.

The more likely scenario is that we don't hit any such backstop. Inflation falls due to rising interest rates, and real home price appreciation falls with it. Since durable goods like houses are more sensitive to changes in interest rates than non-durables, real home prices fall. But nominal home prices don't fall. If they started to, then the Fed would just resume asset purchases to backstop the credit markets. Guaranteed asset purchases are a much faster acting tool than interest rates, so even though the Fed's interest rate hikes course through the economy over months, the backstop is pretty firm.

It's also still very possible that the Fed engineers a "soft landing." If interest rates don't rise too quickly, then real home prices could stay flat or even rise slowly. This is what a return to 2% inflation and 3% home appreciation would look like. Modern monetary policy hasn't operated in the aftermath of a pandemic before, so it's hard to know how well some of the Fed's decisions will play out in this regard. But, this is the outcome that the Fed is currently aiming for.

So, is it possible that your house could be a relatively poor investment over some period of time? Sure (although you also need to take into account imputed rent, leverage, and favorable tax treatments to do that comparison). But it's still very unlikely that home prices will fall in nominal terms, which means that getting stuck with an underwater mortgage or being unable to sell your house is still not something that you should be concerned about.

PS: The person claiming that the market will drop 20% in the next three weeks, the person comparing other posters to Putin for disagreeing, the person posting in mIxEd CaSE, these are not serious people.

Add to that, the person insisting that anyone who disagrees with him is a realtor.

[Anonymous]

Anonymous wrote:

Anonymous wrote:The most likely scenario for close-in desirable DC neighborhoods is that nominal prices may stagnate—not fall and certainly not crash—over the next few years. They will fall, however, in real terms.

This person is getting closer to the truth. I don't actually think real prices will fall; it's more likely that appreciation will gradually slow over the next year and then that real prices will stay flat for a few years. Nominal home prices will almost certainly not fall. But this PP is right; if you're not thinking about how inflation works in this scenario, you're not taking the question seriously.

Inflation is 7%, which means that real interest rates are still quite negative (you can pay 5% interest to buy a typical asset now or you can hold cash for a year for the privilege of paying 7% more for the same asset). So, even with factoring in for some depreciation, it still makes sense to borrow heavily in order to purchase durable assets for which the new value will appreciate at or above the rate of inflation. In fact, because inflation has risen faster than interest rates, real interest rates are now quite a bit lower than they were at the beginning of the pandemic.

Of course, inflation probably won't stay this high, since some of the supply shock issues associated with the pandemic will start to abate and since interest rates are rising quickly. Housing averages about 30% of household expenditure and so it makes up about 30% of CPI, although it's calculated based on imputed rent, not on home prices themselves. But, for that reason, it's difficult for the cost of housing and inflation indicators to diverge greatly for very long. If the inflation rate falls significantly, then by construction the rate of home price appreciation is almost certainly falling, and vice versa.

To the extent that the Fed controls interest rates indirectly, they want to slow down home price appreciation because they want to rein in inflation overall. But they also really don't want nominal home prices to fall, because that can set off a very costly credit market spiral as in 2008. Since the Fed's toolkit has been greatly expanded to include rapid asset purchases, they can basically guarantee that even if they overshoot on interest rates, nominal home prices won't fall substantially at a national level. The potential cost of this kind of backstop is that they may not be able to bring down overall inflation as much as they would like to. So, you would end up with something more akin to the stagflation of the 1970s; very high interest rates yielding low economic growth, but still substantial inflation. No fall in nominal home prices, though.

The more likely scenario is that we don't hit any such backstop. Inflation falls due to rising interest rates, and real home price appreciation falls with it. Since durable goods like houses are more sensitive to changes in interest rates than non-durables, real home prices fall. But nominal home prices don't fall. If they started to, then the Fed would just resume asset purchases to backstop the credit markets. Guaranteed asset purchases are a much faster acting tool than interest rates, so even though the Fed's interest rate hikes course through the economy over months, the backstop is pretty firm.

It's also still very possible that the Fed engineers a "soft landing." If interest rates don't rise too quickly, then real home prices could stay flat or even rise slowly. This is what a return to 2% inflation and 3% home appreciation would look like. Modern monetary policy hasn't operated in the aftermath of a pandemic before, so it's hard to know how well some of the Fed's decisions will play out in this regard. But, this is the outcome that the Fed is currently aiming for.

So, is it possible that your house could be a relatively poor investment over some period of time? Sure (although you also need to take into account imputed rent, leverage, and favorable tax treatments to do that comparison). But it's still very unlikely that home prices will fall in nominal terms, which means that getting stuck with an underwater mortgage or being unable to sell your house is still not something that you should be concerned about.

PS: The person claiming that the market will drop 20% in the next three weeks, the person comparing other posters to Putin for disagreeing, the person posting in mIxEd CaSE, these are not serious people.

Question just for this PP only: talk to me about what you think about the Fed’s planned sell off of its unusually large MBS portfolio. The size of the portfolio seems like a nontrivial variable, but you didn’t mention it. Do you believe it’s a non-issue? As you note, they can always change course and start buying again, if they find they have over-corrected with interest rates, but isn’t there a risk that the portfolio is already so large they don’t actually have much room to go in that direction? The Fed can’t realistically hold much more than the 30% of the market it already holds without introducing other problems into the equation. And it is something of a question mark how the MBS market will respond to the initial sell off. I’d be interested to know what you think.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:The most likely scenario for close-in desirable DC neighborhoods is that nominal prices may stagnate—not fall and certainly not crash—over the next few years. They will fall, however, in real terms.

This person is getting closer to the truth. I don't actually think real prices will fall; it's more likely that appreciation will gradually slow over the next year and then that real prices will stay flat for a few years. Nominal home prices will almost certainly not fall. But this PP is right; if you're not thinking about how inflation works in this scenario, you're not taking the question seriously.

Inflation is 7%, which means that real interest rates are still quite negative (you can pay 5% interest to buy a typical asset now or you can hold cash for a year for the privilege of paying 7% more for the same asset). So, even with factoring in for some depreciation, it still makes sense to borrow heavily in order to purchase durable assets for which the new value will appreciate at or above the rate of inflation. In fact, because inflation has risen faster than interest rates, real interest rates are now quite a bit lower than they were at the beginning of the pandemic.

Of course, inflation probably won't stay this high, since some of the supply shock issues associated with the pandemic will start to abate and since interest rates are rising quickly. Housing averages about 30% of household expenditure and so it makes up about 30% of CPI, although it's calculated based on imputed rent, not on home prices themselves. But, for that reason, it's difficult for the cost of housing and inflation indicators to diverge greatly for very long. If the inflation rate falls significantly, then by construction the rate of home price appreciation is almost certainly falling, and vice versa.

To the extent that the Fed controls interest rates indirectly, they want to slow down home price appreciation because they want to rein in inflation overall. But they also really don't want nominal home prices to fall, because that can set off a very costly credit market spiral as in 2008. Since the Fed's toolkit has been greatly expanded to include rapid asset purchases, they can basically guarantee that even if they overshoot on interest rates, nominal home prices won't fall substantially at a national level. The potential cost of this kind of backstop is that they may not be able to bring down overall inflation as much as they would like to. So, you would end up with something more akin to the stagflation of the 1970s; very high interest rates yielding low economic growth, but still substantial inflation. No fall in nominal home prices, though.

The more likely scenario is that we don't hit any such backstop. Inflation falls due to rising interest rates, and real home price appreciation falls with it. Since durable goods like houses are more sensitive to changes in interest rates than non-durables, real home prices fall. But nominal home prices don't fall. If they started to, then the Fed would just resume asset purchases to backstop the credit markets. Guaranteed asset purchases are a much faster acting tool than interest rates, so even though the Fed's interest rate hikes course through the economy over months, the backstop is pretty firm.

It's also still very possible that the Fed engineers a "soft landing." If interest rates don't rise too quickly, then real home prices could stay flat or even rise slowly. This is what a return to 2% inflation and 3% home appreciation would look like. Modern monetary policy hasn't operated in the aftermath of a pandemic before, so it's hard to know how well some of the Fed's decisions will play out in this regard. But, this is the outcome that the Fed is currently aiming for.

So, is it possible that your house could be a relatively poor investment over some period of time? Sure (although you also need to take into account imputed rent, leverage, and favorable tax treatments to do that comparison). But it's still very unlikely that home prices will fall in nominal terms, which means that getting stuck with an underwater mortgage or being unable to sell your house is still not something that you should be concerned about.

PS: The person claiming that the market will drop 20% in the next three weeks, the person comparing other posters to Putin for disagreeing, the person posting in mIxEd CaSE, these are not serious people.

Question just for this PP only: talk to me about what you think about the Fed’s planned sell off of its unusually large MBS portfolio. The size of the portfolio seems like a nontrivial variable, but you didn’t mention it. Do you believe it’s a non-issue? As you note, they can always change course and start buying again, if they find they have over-corrected with interest rates, but isn’t there a risk that the portfolio is already so large they don’t actually have much room to go in that direction? The Fed can’t realistically hold much more than the 30% of the market it already holds without introducing other problems into the equation. And it is something of a question mark how the MBS market will respond to the initial sell off. I’d be interested to know what you think.

We have had a decade of strict mortgage rules, those MBS are probably fairly high quality now and will find a good market. Rates will likely go up some as alternatives are paying more, but the MBS will find a ready market.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:The most likely scenario for close-in desirable DC neighborhoods is that nominal prices may stagnate—not fall and certainly not crash—over the next few years. They will fall, however, in real terms.

This person is getting closer to the truth. I don't actually think real prices will fall; it's more likely that appreciation will gradually slow over the next year and then that real prices will stay flat for a few years. Nominal home prices will almost certainly not fall. But this PP is right; if you're not thinking about how inflation works in this scenario, you're not taking the question seriously.

Inflation is 7%, which means that real interest rates are still quite negative (you can pay 5% interest to buy a typical asset now or you can hold cash for a year for the privilege of paying 7% more for the same asset). So, even with factoring in for some depreciation, it still makes sense to borrow heavily in order to purchase durable assets for which the new value will appreciate at or above the rate of inflation. In fact, because inflation has risen faster than interest rates, real interest rates are now quite a bit lower than they were at the beginning of the pandemic.

Of course, inflation probably won't stay this high, since some of the supply shock issues associated with the pandemic will start to abate and since interest rates are rising quickly. Housing averages about 30% of household expenditure and so it makes up about 30% of CPI, although it's calculated based on imputed rent, not on home prices themselves. But, for that reason, it's difficult for the cost of housing and inflation indicators to diverge greatly for very long. If the inflation rate falls significantly, then by construction the rate of home price appreciation is almost certainly falling, and vice versa.

To the extent that the Fed controls interest rates indirectly, they want to slow down home price appreciation because they want to rein in inflation overall. But they also really don't want nominal home prices to fall, because that can set off a very costly credit market spiral as in 2008. Since the Fed's toolkit has been greatly expanded to include rapid asset purchases, they can basically guarantee that even if they overshoot on interest rates, nominal home prices won't fall substantially at a national level. The potential cost of this kind of backstop is that they may not be able to bring down overall inflation as much as they would like to. So, you would end up with something more akin to the stagflation of the 1970s; very high interest rates yielding low economic growth, but still substantial inflation. No fall in nominal home prices, though.

The more likely scenario is that we don't hit any such backstop. Inflation falls due to rising interest rates, and real home price appreciation falls with it. Since durable goods like houses are more sensitive to changes in interest rates than non-durables, real home prices fall. But nominal home prices don't fall. If they started to, then the Fed would just resume asset purchases to backstop the credit markets. Guaranteed asset purchases are a much faster acting tool than interest rates, so even though the Fed's interest rate hikes course through the economy over months, the backstop is pretty firm.

It's also still very possible that the Fed engineers a "soft landing." If interest rates don't rise too quickly, then real home prices could stay flat or even rise slowly. This is what a return to 2% inflation and 3% home appreciation would look like. Modern monetary policy hasn't operated in the aftermath of a pandemic before, so it's hard to know how well some of the Fed's decisions will play out in this regard. But, this is the outcome that the Fed is currently aiming for.

So, is it possible that your house could be a relatively poor investment over some period of time? Sure (although you also need to take into account imputed rent, leverage, and favorable tax treatments to do that comparison). But it's still very unlikely that home prices will fall in nominal terms, which means that getting stuck with an underwater mortgage or being unable to sell your house is still not something that you should be concerned about.

PS: The person claiming that the market will drop 20% in the next three weeks, the person comparing other posters to Putin for disagreeing, the person posting in mIxEd CaSE, these are not serious people.

Question just for this PP only: talk to me about what you think about the Fed’s planned sell off of its unusually large MBS portfolio. The size of the portfolio seems like a nontrivial variable, but you didn’t mention it. Do you believe it’s a non-issue? As you note, they can always change course and start buying again, if they find they have over-corrected with interest rates, but isn’t there a risk that the portfolio is already so large they don’t actually have much room to go in that direction? The Fed can’t realistically hold much more than the 30% of the market it already holds without introducing other problems into the equation. And it is something of a question mark how the MBS market will respond to the initial sell off. I’d be interested to know what you think.

We have had a decade of strict mortgage rules, those MBS are probably fairly high quality now and will find a good market. Rates will likely go up some as alternatives are paying more, but the MBS will find a ready market.

That’s probably right. I hope that’s right. But if I were an investor in the derivatives market, I don’t think this is the moment that I would be looking to increase my share of MBS, even though the assets themselves are of much higher quality than in 2008. The fact that the Fed picked up a third of its portfolio during the pandemic and the exuberance would have me wondering what the market in MBS will look like without the Fed propping up a third of it. And if the sell off doesn’t go smoothly, a nimble course reversal might not be as possible as it otherwise would be given how much of the market the Fed is holding. As I’ve said before, it could actually be fine, as you suggest, but it definitely feels like uncharted territory. It’s not clear what a normal post-pandemic MBS market looks like.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:The most likely scenario for close-in desirable DC neighborhoods is that nominal prices may stagnate—not fall and certainly not crash—over the next few years. They will fall, however, in real terms.

This person is getting closer to the truth. I don't actually think real prices will fall; it's more likely that appreciation will gradually slow over the next year and then that real prices will stay flat for a few years. Nominal home prices will almost certainly not fall. But this PP is right; if you're not thinking about how inflation works in this scenario, you're not taking the question seriously.

Inflation is 7%, which means that real interest rates are still quite negative (you can pay 5% interest to buy a typical asset now or you can hold cash for a year for the privilege of paying 7% more for the same asset). So, even with factoring in for some depreciation, it still makes sense to borrow heavily in order to purchase durable assets for which the new value will appreciate at or above the rate of inflation. In fact, because inflation has risen faster than interest rates, real interest rates are now quite a bit lower than they were at the beginning of the pandemic.

Of course, inflation probably won't stay this high, since some of the supply shock issues associated with the pandemic will start to abate and since interest rates are rising quickly. Housing averages about 30% of household expenditure and so it makes up about 30% of CPI, although it's calculated based on imputed rent, not on home prices themselves. But, for that reason, it's difficult for the cost of housing and inflation indicators to diverge greatly for very long. If the inflation rate falls significantly, then by construction the rate of home price appreciation is almost certainly falling, and vice versa.

To the extent that the Fed controls interest rates indirectly, they want to slow down home price appreciation because they want to rein in inflation overall. But they also really don't want nominal home prices to fall, because that can set off a very costly credit market spiral as in 2008. Since the Fed's toolkit has been greatly expanded to include rapid asset purchases, they can basically guarantee that even if they overshoot on interest rates, nominal home prices won't fall substantially at a national level. The potential cost of this kind of backstop is that they may not be able to bring down overall inflation as much as they would like to. So, you would end up with something more akin to the stagflation of the 1970s; very high interest rates yielding low economic growth, but still substantial inflation. No fall in nominal home prices, though.

The more likely scenario is that we don't hit any such backstop. Inflation falls due to rising interest rates, and real home price appreciation falls with it. Since durable goods like houses are more sensitive to changes in interest rates than non-durables, real home prices fall. But nominal home prices don't fall. If they started to, then the Fed would just resume asset purchases to backstop the credit markets. Guaranteed asset purchases are a much faster acting tool than interest rates, so even though the Fed's interest rate hikes course through the economy over months, the backstop is pretty firm.

It's also still very possible that the Fed engineers a "soft landing." If interest rates don't rise too quickly, then real home prices could stay flat or even rise slowly. This is what a return to 2% inflation and 3% home appreciation would look like. Modern monetary policy hasn't operated in the aftermath of a pandemic before, so it's hard to know how well some of the Fed's decisions will play out in this regard. But, this is the outcome that the Fed is currently aiming for.

So, is it possible that your house could be a relatively poor investment over some period of time? Sure (although you also need to take into account imputed rent, leverage, and favorable tax treatments to do that comparison). But it's still very unlikely that home prices will fall in nominal terms, which means that getting stuck with an underwater mortgage or being unable to sell your house is still not something that you should be concerned about.

PS: The person claiming that the market will drop 20% in the next three weeks, the person comparing other posters to Putin for disagreeing, the person posting in mIxEd CaSE, these are not serious people.

Question just for this PP only: talk to me about what you think about the Fed’s planned sell off of its unusually large MBS portfolio. The size of the portfolio seems like a nontrivial variable, but you didn’t mention it. Do you believe it’s a non-issue? As you note, they can always change course and start buying again, if they find they have over-corrected with interest rates, but isn’t there a risk that the portfolio is already so large they don’t actually have much room to go in that direction? The Fed can’t realistically hold much more than the 30% of the market it already holds without introducing other problems into the equation. And it is something of a question mark how the MBS market will respond to the initial sell off. I’d be interested to know what you think.

We have had a decade of strict mortgage rules, those MBS are probably fairly high quality now and will find a good market. Rates will likely go up some as alternatives are paying more, but the MBS will find a ready market.

That’s probably right. I hope that’s right. But if I were an investor in the derivatives market, I don’t think this is the moment that I would be looking to increase my share of MBS, even though the assets themselves are of much higher quality than in 2008. The fact that the Fed picked up a third of its portfolio during the pandemic and the exuberance would have me wondering what the market in MBS will look like without the Fed propping up a third of it. And if the sell off doesn’t go smoothly, a nimble course reversal might not be as possible as it otherwise would be given how much of the market the Fed is holding. As I’ve said before, it could actually be fine, as you suggest, but it definitely feels like uncharted territory. It’s not clear what a normal post-pandemic MBS market looks like.

Why has the Fed been purchasing MBS??

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:The most likely scenario for close-in desirable DC neighborhoods is that nominal prices may stagnate—not fall and certainly not crash—over the next few years. They will fall, however, in real terms.

This person is getting closer to the truth. I don't actually think real prices will fall; it's more likely that appreciation will gradually slow over the next year and then that real prices will stay flat for a few years. Nominal home prices will almost certainly not fall. But this PP is right; if you're not thinking about how inflation works in this scenario, you're not taking the question seriously.

Inflation is 7%, which means that real interest rates are still quite negative (you can pay 5% interest to buy a typical asset now or you can hold cash for a year for the privilege of paying 7% more for the same asset). So, even with factoring in for some depreciation, it still makes sense to borrow heavily in order to purchase durable assets for which the new value will appreciate at or above the rate of inflation. In fact, because inflation has risen faster than interest rates, real interest rates are now quite a bit lower than they were at the beginning of the pandemic.

Of course, inflation probably won't stay this high, since some of the supply shock issues associated with the pandemic will start to abate and since interest rates are rising quickly. Housing averages about 30% of household expenditure and so it makes up about 30% of CPI, although it's calculated based on imputed rent, not on home prices themselves. But, for that reason, it's difficult for the cost of housing and inflation indicators to diverge greatly for very long. If the inflation rate falls significantly, then by construction the rate of home price appreciation is almost certainly falling, and vice versa.

To the extent that the Fed controls interest rates indirectly, they want to slow down home price appreciation because they want to rein in inflation overall. But they also really don't want nominal home prices to fall, because that can set off a very costly credit market spiral as in 2008. Since the Fed's toolkit has been greatly expanded to include rapid asset purchases, they can basically guarantee that even if they overshoot on interest rates, nominal home prices won't fall substantially at a national level. The potential cost of this kind of backstop is that they may not be able to bring down overall inflation as much as they would like to. So, you would end up with something more akin to the stagflation of the 1970s; very high interest rates yielding low economic growth, but still substantial inflation. No fall in nominal home prices, though.

The more likely scenario is that we don't hit any such backstop. Inflation falls due to rising interest rates, and real home price appreciation falls with it. Since durable goods like houses are more sensitive to changes in interest rates than non-durables, real home prices fall. But nominal home prices don't fall. If they started to, then the Fed would just resume asset purchases to backstop the credit markets. Guaranteed asset purchases are a much faster acting tool than interest rates, so even though the Fed's interest rate hikes course through the economy over months, the backstop is pretty firm.

It's also still very possible that the Fed engineers a "soft landing." If interest rates don't rise too quickly, then real home prices could stay flat or even rise slowly. This is what a return to 2% inflation and 3% home appreciation would look like. Modern monetary policy hasn't operated in the aftermath of a pandemic before, so it's hard to know how well some of the Fed's decisions will play out in this regard. But, this is the outcome that the Fed is currently aiming for.

So, is it possible that your house could be a relatively poor investment over some period of time? Sure (although you also need to take into account imputed rent, leverage, and favorable tax treatments to do that comparison). But it's still very unlikely that home prices will fall in nominal terms, which means that getting stuck with an underwater mortgage or being unable to sell your house is still not something that you should be concerned about.

PS: The person claiming that the market will drop 20% in the next three weeks, the person comparing other posters to Putin for disagreeing, the person posting in mIxEd CaSE, these are not serious people.

Question just for this PP only: talk to me about what you think about the Fed’s planned sell off of its unusually large MBS portfolio. The size of the portfolio seems like a nontrivial variable, but you didn’t mention it. Do you believe it’s a non-issue? As you note, they can always change course and start buying again, if they find they have over-corrected with interest rates, but isn’t there a risk that the portfolio is already so large they don’t actually have much room to go in that direction? The Fed can’t realistically hold much more than the 30% of the market it already holds without introducing other problems into the equation. And it is something of a question mark how the MBS market will respond to the initial sell off. I’d be interested to know what you think.

We have had a decade of strict mortgage rules, those MBS are probably fairly high quality now and will find a good market. Rates will likely go up some as alternatives are paying more, but the MBS will find a ready market.

That’s probably right. I hope that’s right. But if I were an investor in the derivatives market, I don’t think this is the moment that I would be looking to increase my share of MBS, even though the assets themselves are of much higher quality than in 2008. The fact that the Fed picked up a third of its portfolio during the pandemic and the exuberance would have me wondering what the market in MBS will look like without the Fed propping up a third of it. And if the sell off doesn’t go smoothly, a nimble course reversal might not be as possible as it otherwise would be given how much of the market the Fed is holding. As I’ve said before, it could actually be fine, as you suggest, but it definitely feels like uncharted territory. It’s not clear what a normal post-pandemic MBS market looks like.

Why has the Fed been purchasing MBS??

They started to unwind in 2019, but you know COVID. https://www.federalreserve.gov/newsevents/pressreleases/monetary20190320c.htm

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:The most likely scenario for close-in desirable DC neighborhoods is that nominal prices may stagnate—not fall and certainly not crash—over the next few years. They will fall, however, in real terms.

This person is getting closer to the truth. I don't actually think real prices will fall; it's more likely that appreciation will gradually slow over the next year and then that real prices will stay flat for a few years. Nominal home prices will almost certainly not fall. But this PP is right; if you're not thinking about how inflation works in this scenario, you're not taking the question seriously.

Inflation is 7%, which means that real interest rates are still quite negative (you can pay 5% interest to buy a typical asset now or you can hold cash for a year for the privilege of paying 7% more for the same asset). So, even with factoring in for some depreciation, it still makes sense to borrow heavily in order to purchase durable assets for which the new value will appreciate at or above the rate of inflation. In fact, because inflation has risen faster than interest rates, real interest rates are now quite a bit lower than they were at the beginning of the pandemic.

Of course, inflation probably won't stay this high, since some of the supply shock issues associated with the pandemic will start to abate and since interest rates are rising quickly. Housing averages about 30% of household expenditure and so it makes up about 30% of CPI, although it's calculated based on imputed rent, not on home prices themselves. But, for that reason, it's difficult for the cost of housing and inflation indicators to diverge greatly for very long. If the inflation rate falls significantly, then by construction the rate of home price appreciation is almost certainly falling, and vice versa.

To the extent that the Fed controls interest rates indirectly, they want to slow down home price appreciation because they want to rein in inflation overall. But they also really don't want nominal home prices to fall, because that can set off a very costly credit market spiral as in 2008. Since the Fed's toolkit has been greatly expanded to include rapid asset purchases, they can basically guarantee that even if they overshoot on interest rates, nominal home prices won't fall substantially at a national level. The potential cost of this kind of backstop is that they may not be able to bring down overall inflation as much as they would like to. So, you would end up with something more akin to the stagflation of the 1970s; very high interest rates yielding low economic growth, but still substantial inflation. No fall in nominal home prices, though.

The more likely scenario is that we don't hit any such backstop. Inflation falls due to rising interest rates, and real home price appreciation falls with it. Since durable goods like houses are more sensitive to changes in interest rates than non-durables, real home prices fall. But nominal home prices don't fall. If they started to, then the Fed would just resume asset purchases to backstop the credit markets. Guaranteed asset purchases are a much faster acting tool than interest rates, so even though the Fed's interest rate hikes course through the economy over months, the backstop is pretty firm.

It's also still very possible that the Fed engineers a "soft landing." If interest rates don't rise too quickly, then real home prices could stay flat or even rise slowly. This is what a return to 2% inflation and 3% home appreciation would look like. Modern monetary policy hasn't operated in the aftermath of a pandemic before, so it's hard to know how well some of the Fed's decisions will play out in this regard. But, this is the outcome that the Fed is currently aiming for.

So, is it possible that your house could be a relatively poor investment over some period of time? Sure (although you also need to take into account imputed rent, leverage, and favorable tax treatments to do that comparison). But it's still very unlikely that home prices will fall in nominal terms, which means that getting stuck with an underwater mortgage or being unable to sell your house is still not something that you should be concerned about.

PS: The person claiming that the market will drop 20% in the next three weeks, the person comparing other posters to Putin for disagreeing, the person posting in mIxEd CaSE, these are not serious people.

Question just for this PP only: talk to me about what you think about the Fed’s planned sell off of its unusually large MBS portfolio. The size of the portfolio seems like a nontrivial variable, but you didn’t mention it. Do you believe it’s a non-issue? As you note, they can always change course and start buying again, if they find they have over-corrected with interest rates, but isn’t there a risk that the portfolio is already so large they don’t actually have much room to go in that direction? The Fed can’t realistically hold much more than the 30% of the market it already holds without introducing other problems into the equation. And it is something of a question mark how the MBS market will respond to the initial sell off. I’d be interested to know what you think.

We have had a decade of strict mortgage rules, those MBS are probably fairly high quality now and will find a good market. Rates will likely go up some as alternatives are paying more, but the MBS will find a ready market.

I'm the PP (this poster is not, for clarification). I agree that the quality of the MBS is not a huge concern. In 2008, there was uncertainty about contagion from things like credit default swaps and other linkages that the market couldn't easily observe. None of those features apply to the Fed, and the size of the Fed in the market means that every other individual player is less likely to be big enough to freeze up the market. That's not the whole story, but it is one important necessary component of maintaining a liquid market.

I think of the Fed's actions as operating on the risk-return frontier of the MBS market. If the Fed becomes an even larger player in MBS, they bid up the price of those assets and make the market less risky (opportunity costs, not default risk of the underlying mortgages) in exchange for lower expected returns. There is no inherent reason why this mechanism can't operate right up to the point of the Fed controlling virtually all of the MBS market, as long as its actions are predictable.

Unpredictability of the Fed's objective function would be a problem. For example, if a very large Fed tried to bully private buyers using its market power, it could theoretically cause the private MBS market to collapse. I don't see how or why this would ever happen because it's clearly not in the interest of the Fed itself. The bigger potential downside to a very large Fed presence in MBS is that the bigger the market share, the more limited is the Fed's ability to sell assets to control inflation without tanking the private MBS market. Eliminating that tool from the toolbox could make it harder to keep inflation in check; they would need to use higher interest rates instead. But the issues with the Fed's market power are asymmetric. No matter its portfolio size, the Fed can always buy more assets without destabilizing the market, so the backstop on nominal prices isn't threatened.

In any case, the Fed has moved pretty deliberately and with lots of advance notice so far. So, I'm inclined to think that any effect that their current or expected future portfolio size has is priced into the market, much as a good portion of the planned interest rate hikes are priced into current rates. I think we're very far from having to worry about the Fed disrupting the function of the private market.