Excerpts here from an article yesterday about the Fed’s involvement. The rapid run-up in home prices is brutal on home buyers, but for home sellers, realtors, and the overall economy, it is great news. Expect that the Fed will be very accommodative for longer than it takes to get employment on track, which means we should have low mortgage rates – and higher home prices – for at least the next year.
But what if the run-up in home prices is temporary?
Does Powell expect home prices to come down when rates go up? I hope not, because sellers get a vote – and we know they will be VERY reluctant to sell for less. Either we will have low rates forever, or once they go up (back to 4-something), the bubble created won’t pop or crash – instead it will ooze like slime while participants grapple with an unprecedented marketplace with little or no help:
Powell explained that the Fed has had to use its extraordinary policy to help the economy with still more than 9 million people out of work.
“It’s very much appropriate that monetary policy be accommodative,” he said. Powell also said with regard to financial stability, the Fed considers asset prices, leverage in the banking system and nonbanking system, as well as funding risk.
“I would say financial stability vulnerabilities are overall moderate,” he said, adding the Fed’s goals are also to prevent long-term damage to the economy and make sure the financial system is resilient to shocks. He said he believes the run-up in housing prices is temporary, and the pandemic has created a surge in demand because of people working from home.
“I think he’s reluctant to talk about specific stocks and even when he was asked about the housing market, he feels as though some of that is specific to the idea that supply was constrained, and there was pent-up demand and it’s temporary,” said Michael Arone, chief market strategist at State Street Global Advisors. “I wouldn’t expect the Fed chairman to acknowledge that Fed policy helps create bubbles.”
The Fed’s zero rate policy has helped fuel a mortgage boom with record low lending rates. Home prices were up 9.5% in November from a year earlier, the strongest annual growth rate in over six years, according to S&P CoreLogic Case-Shiller Home Price Indices. It is one of the strongest annual gains in the 30-year history of the data.
Powell, during the briefing, said the latest run-up in asset prices was not due to monetary policy but due to news on vaccines and fiscal stimulus. “He’s overstating the ability of the Fed to help the economy and understating its ability to help markets,” said Peter Boockvar, chief investment strategist at Bleakley Global Advisors. “He keeps deflecting.” Boockvar said the Fed’s policy impact is clearly felt across markets, including junk bonds where yields are at historic lows and some prices are at record highs.
“They’re solely focused on the virus and they don’t care what the side effects are of what they’re currently doing. Buying $80 billion of short term Treasurys, how does that translate to better economic growth?” he said. “Powell was so nonchalant about these hikes in home prices. It’s just temporary. Tell that to the first time homebuyer who is trying to buy a home and keeps getting outbid.”
Rupkey said the Fed is more concerned about other problems and does not see an issue yet.
“This Federal Reserve is not going to respond to asset prices unless they go up another 100%. This Fed is more concerned than ever about maximum employment,” Rupkey said, “helping those on the very fringe of the labor market.”
define temporary? we have been in a very low interest rate environment for 10+ yrs. there have been only two places to put money during these past 10 yrs where it can grow…..stocks and housing. bitcoin is too opaque to invest in for those that have homes. myself included……
sellers aren’t selling unless they have to……
Gamestop mania has shown us all that nothing makes sense anymore
We know that prices really matter to sellers, and could be the only thing.
Do they matter to buyers? Probably not as much as location, condition, and payments.
In this environment, we can add ‘winning’ to the buyers’ list too.
And the disrupters think you don’t need an agent to help everyone get what they want?
> “[Powell] said he believes the run-up in housing prices is temporary, and the pandemic has created a surge in demand because of people working from home.”
If working from home is not temporary then his premise is busted.
Powell is also not sensitive to the fact that much of existing housing inventory isn’t suitable for the new demand. Too small, too urban, in dysfunctional cities.
Two great points that expose Powell as an amateur real estate guy.
But like virtually everybody, that doesn’t stop him from having an opinion that he thinks is right!
An opinion? Everyone has one. Most stink. Including mine.
I thought the supply would show up. Honest! 😉
Me too – maybe it’s just early?
What can impact demand? That is the answer to this riddle.
Yes, Tulipmania always repeats itself, especially when too much EZ cash keeps flowing…this time with near 0% (and even negative!) rates globally feeding the beast!
We are a couple of years overdue – late 70’s…80’s…90’s…& 00’s…although the normal correction was delayed with $100’s of $$$Billions$$$/month in 2020 Fed $$$
Where & exactly when asset values ‘correct’ no one knows.
Yet when Gamestop, Bitcoin, etc. have no or even negative value is THE sign too. much cash is out there!
Greater Fool Theory vs. Fundamentals.Financial Management.