Posted on 05/28/2022 9:44:19 AM PDT by Browns Ultra Fan
The Federal Reserve has been signaling a tightening of its loose monetary policy (essentially loose since the housing bubble burst of 2008 and the ensuing financial crisis).
So, potential home owners have to pay 5.10% for a 30-year fixed-rate mortgage while the effective Fed Funds rate, the rate at which banks lend to each other, is a measly 0.83%. This puts consumers at a relative disadvantage to large Wall Street firms that are gobbling up houses at an accelerated rate.
RealtyTrac has a Attom-sourced table of investor purchases of housing from Q3 2021, before The Fed started helping to crank-up mortgage rates for consumers.
With the US housing market slowing (thanks to The Fed’s signaling of monetary tightening), the question now is how far will The Fed go in its “War on Inflation!”?
If surges in Federal spending (requiring surges in Federal debt) have gone away (except for $40 billion in Ukrainian relief and Biden’s possible student loan cancellation of $10,000 that will cost an estimated $321 billion … and help drive up college tuitions even further), we may be over the “twin gorgings” of the Covid spending spree. This alone may result is a decline in the inflation rate.
Where do we sit today with the REAL neutral rate? The REAL Fed Funds Target Rate (upper bound) is -4.41%. It was in positive territory during the Trump years. But then Covid struck.
So, we sit here today with Fed Monetary policy “loose as a goose.” And Wall Street investors “drunk as a skunk” on Fed Stimulus.
No wonder Wall Streeters like to go “Down To The Nightclub!” The Fed still has not taken the monetary stimulypto away, but have taken it away for consumers buying housing.
(Excerpt) Read more at confoundedinterest.net ...
Fed Funds rates are incredibly low in real terms and far, far below what is needed to fight inflation. The Fed is talking but not doing anything positive. Fed policy is still extremely loose and not addressing inflation. Unaddressed inflation does not heal itself. Higher prices beget higher prices. We have not even begun seeing the higher wages which are coming and still will not keep up with inflation. I believe this is going to be a lot worse until the Fed and Government actually commit in action to taming inflation.
Cash buyers are in the drivers seat.
This is a good thing.
Apples and Oranges ...
I don’t pretend to understand all of this.
But, from what I gather, home prices have escalated sharply, due to supply and demand. There is the given supply, but the demand has come as investors are buying so many houses and condominiums. Which pushes up the prices, because demand for housing has increased because of so many investors in the housing market.
What I don’t understand, is why so many investors have decided to buy houses, as investments. Why have so many investors decided to buy houses, as opposed to investing on Wall Street, or investing in any other assets?
The net effect seems to be, to make it more difficult for everyone to buy a house and get a mortgage, because the investors have pushed prices of housing up.
Blackrock has cash
Bkmk
And BlackRock is NOT “cash”— it’s Chi-Com fake a@@ “investment” from the potemkin house of cards that is China.
Fraud, and backed fraud that has to be backed. Margin call- worthless paper, and all mortgages are Fanny and Freddy as part of the paper weak chain.
Investment groups are buying properties to rent them out. As demand for housing is still increasing, one effect is a limited housing inventory for people looking to purchase their first home. They’ll be stuck renting with ever-inflating purchase prices and interest rates, with no escape.
Buy, hold and sell high along the way or use as collateral on other ventures.
There are a number of Federal and state programs out there aimed at helping these people buy a first home. When I was shopping for a home last year I came across some for as little as 3% down. For a $500,000 home (hardly a starter home in most markets), that's a down payment of just $15,000. Even if you add in lender fees and closing costs you're looking at less than $35,000 in up-front expenses for the buyer. I'd make the case that someone who doesn't have $35,000 available in liquid assets has no business owning a home at all.
I think the bigger issue is that too many buyers in the market for a first home are already saddled with a lot of other expenses -- including college debt. When you add the outrageous property taxes in many large metro areas, what you'll probably find is that these buyers can barely make ends meet even BEFORE they account for housing costs.
That’s only partially true. The govt help for first time home buyers is now equity based in a lot of areas. Good luck getting this help. Additionally, I don’t think the govt should be in the housing business especially since the house is rigged.
Buy and hold and sell high?
Sounds good, until/unless, the housing markets go into decline. In which case, one would hope those institutional investors are well enough diversified, so that a decline such as we saw starting in 2008 in housing won’t be a huge shock to their portfolios.
Yes and along with an insufficient financial foundation, some of these 1st time buyers may be aiming a bit too high for their means, whatever those means may be.
I’m a senior but having looked at properties a couple of years ago, as we would expect, the more affordable were less appealing in several aspects. So getting the home *they need* is likely not where they are looking.
Stopping the cash drain of perpetually making rent payments for no earned equity should be the 1st time buyer of modest means main concern.
Isn’t that how there came to be all these mortgage back securities bundles of underwater properties? The holders of these mortgages got bailed out by Fanny & Freddy and ultimately by the Fed.
the more affordable were less appealing in several aspects.
I hear this a lot from those in the real estate business. Potential buyers complain that a house is in a less desirable neighborhood, the house is older and needs work, the house is too small, the house lacks a formal dining room, the house lacks space for a pool table, etc. There are a lot of things on people’s lists which cause them to opt out.
I agree that young people should buy what they can afford, and then build equity, as a step to eventually having the home they really want. Paying out rent for years and years is not good personal financial planning.
Then again, lots of people, not just young potential home buyers, could use some financial planning in their lives.
Yes, as I recall, the mortgage backed securities dropped sharply in value, as the housing market dropped. And then Fanny and Freddie picked up the slack.
It could happen again, with so many institutional investors into housing.
Look at what the WEF is planning. This fits.
A friend in real estate for thirty years and a really smart guy told me investment companies are coming in and asking him to buy entire new developments for rental housing.
He says you don’t want to do that. They insist and say they have managers. He says you’ll have ghettos in ten years.
He even shows them the neighborhoods that collapsed. They don’t listen and they don’t care.
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