Reply to Federal Reserve: signs abound that housing market is entering bubble territory

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]You think Jerome Powell has the nerve to shake up the housing market? No way. He was supposed to be a hardcore right wing rates guy but dropped to zero so fast it made your head spin. Then a few tweets from Trump and he didn’t touch rates for two years. He will raise twice to three times and that’s it. [/quote]

He’s not going to do it on purpose. Trump wasn’t facing double-digit inflation, and the opposite is happening here. Biden is screaming at Powell to get inflation under control before the mid-term elections. The concern is that we’re already in the situation we were in in the early 80’s, when the Fed waited so long to act, that by the time Volcker did what he had to do, the cure was very painful.

Interest rates alone aren’t what is worrying. The amount of QE the Fed has to unwind is unprecedented. This is an oversimplification, but the problem is that the Fed has been buying up to $120 billion worth of Mortgage backed securities and Treasuries a month for years. That was $$ off the books of the banks, which allowed them to loan more $$.  In May, they’re going to start letting $95 billion worth of those roll off as they mature. It’s not clear that they’ll meet that target, nor that simply letting the bonds roll off will do the trick. They may have to actively sell bonds, and no one has any idea what impact that will have on the loan market, other than not good. Banks will buy those bonds, but that will entail using cash that then won’t be available to loan out as mortgages.

Here’s the doomer perspective, which I don’t necessarily subscribe to, but it’s not outside the realm of possibility:

https://seekingalpha.com/article/4488903-another-housing-bubble-fed-holding-pin[/quote]

Wait, seeingalpha is suggesting there's a housing bubble? Stop the presses:

https://seekingalpha.com/article/2790915-2015-housing-trends-will-the-echo-bubble-continue-expanding

https://seekingalpha.com/article/4066115-housing-bubble-is-back

https://seekingalpha.com/article/4187390-u-s-housing-bubble-enters-stage-2-suddenly-motivated-sellers

https://seekingalpha.com/article/4236567-splendid-housing-bubbles-in-america-shrink

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I didn’t say I agree with them, but I give them credit for being consistent. They predicted that the unprecedented levels of QE would lead to inflation and an unsustainable boom in housing prices (check) and that it would become dangerous when it eventually had to be unwound (which is where we are now). Their position is that it was like a sugar high for the economy, and eventually the crash will come (and they weren’t alone in that, this has been openly discussed for years).  We’re going from the Fed buying $40 billion a month to trimming $95 billion a month, and it’s not clear that will be enough to tame inflation. It may be that the Fed can navigate  unloading $2.6 trillion in bonds (25% of the mortgage market, for perspective) without harming the market, but that entails a lot of finger crossing and hopium, and is not something that I’m willing to bet my own money on. [/quote]

Consistent?  Broke clock you mean. There is no proof the boom in housing prices is unsustainable, if you mean the prices will hoold. I don’t think any one is advocating that prices will keep rising at the same level, so you would be arguing against  a straw man.

And to be honest, they and many others have been warning of inflation for DECADES. Yes it is here. Mostly from supply chain disruptions, but it is up to the Fed to help halt it. [/quote]

If you think supply chain disruptions are our only problem, I’m not taking market advice from you. [/quote]

Omg you twit.  Demand that exceeds supply is what drives inflation. [b]The vast majority of the injected QE went to rents and larg kk er mortgages[/b]. Wages only very recently started rising, lagging inflation so this can’t be the driver.  So what has caused the wide spread rise in food, fuel, commodities ?[/quote]

More clueless crap.

[img]https://techcrunch.com/wp-content/uploads/2012/06/912accb5_picard-facepalm.png[/img]

Yes, Deman has exceeded supply since the pandemic started. But the question is WHY? Why wasn't the demand there before? It's not like people suddenly went overnight "OMG!! I gotta buy a house NOW!". But wait...that is EXACTLY what happened. Again, the question is WHY? Answer (in no particular order):

- Eviction Moratorium - When you allow people to live rent free for over 2 years, that's real money/savings that add up. Who got screwed? Landlords.
- Freeze on student loan payments - When you allow people to not pay $1000-$2000 per month, that they are supposed to AND you give them indications that that they may never have to pay it back, that's real money/savings that add up.
- Child Credit - Suddenly people with kids are getting free money for just having kids.
- Enhanced unemployment benefits (including federal and state/local) - When you pay people more to NOT work, vs earning a living, their cost of living drops quite low, and they suddenly have more disposable income.
- PPP loans - I won't even go there..what a cluster$#@ck.

And these are just off the top of my head, and they ALL happened in the last two years. Well, guess what? That most certainly increases demand [b][b]artificially, for a short term[/b][/b]. That demand is NOT so called milliners going, "ha! now I have kids and I have a good job, gotta go out and buy a house absolutely right NOW!". That's BS and any sane person (not too many here) knows it.

Well, all those "extraordinary" programs from the last 2 years have either already ended or will be ending shortly. AND given the rise in "real" inflation (i.e. cost of everyday goods), the Fed is on a warpath to raise interest rates at the fastest pace in the last 40 years. You REALLY think that will not end up in demand destruction on almost every front, including housing/RE?? If you think so, I got a bridge somewhere...

If DEMAND is what is causing prices to go exponential, then the demand DESTRUCTION is coming. Doesn't happen overnight, but it's coming, if not already being felt in RE already (it is). And RE is about the worst investment if hedging against inflation is your objective. No other asset class has a ~1.5% (property taxes/insurance/maintenance) carrying cost every YEAR. You could have bought any number of other investments (interest rate swaps, Eurodollar options, TIPS) and you'd be perfectly hedges against inflation without that huge carrying cost.

If the above makes your head spin, you have no business commenting on the state of markets/asset classes.

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