Data Suggests Fed’s MBS Operations and Wall Street Investors Behind Inflated US Real Estate Market
The Federal Reserve and America’s big banks have significantly inflated home prices across the U.S. according to a number of statistics. In many towns across the nation, home sales are facing bidding wars and certain regions are seeing property shortages. One report notes that homebuyers are bidding against “pension funds and Wall Street types,” as investors now represent “20% of U.S. home sales.”
Investors and Deep-Pocket Rivals Are Behind 20% of US Home Sales
Things are looking pretty interesting in the world of U.S. real estate, and in nearly every region in the country home sales are skyrocketing. It’s fascinating, because even though the country has seen massive unemployment numbers and local businesses shut down for well over a year, the housing market is still on fire. Although, things are not the same as they once were during the United States subprime mortgage crisis (2007-2010) that took place over a decade ago.
The reason things are not the same is because today’s banks are far more strict when it comes to getting a mortgage in the U.S., and there’s also a 20% or more down payment required these days. This wasn’t the case during the U.S. subprime mortgage crisis years ago, as that specific economic downfall was blamed on predatory loans given to people with unstable finances. At the time, almost any American could purchase a home with little to no financial background checks, and down payments were not mandated.
That’s not the case anymore, following the Covid-19 outbreak and into 2021’s real estate madness things have changed. Homebuyers must come up with no less than 20% capital for a down payment, and pass the lender’s strict guidelines. Despite these heavier requirements, the Wall Street Journal (WSJ) reports that the U.S. is seeing a “real estate frenzy.” The WSJ’s luxury real estate reporter, Candace Taylor, specifically covers the Rust Belt region in the U.S., but home values are jumping in every state in the country.
Taylor’s report notes that it’s a “real-estate free-for-all” and homebuyers have noticed a new kind of buyer entering the housing market. The homes are selling faster than they are listed, even though in some of these regions “properties typically sat on the market for months.” The reason behind the “real estate frenzy” is a new wave of “investors and deep-pocket rivals,” Taylor says. The report highlights that investors now represent 20% of the current retail property sales in the United States.
In the Rust-Belt city of Allentown, the report focuses on how the price for a median-listed home spiked 24%. Moreover, one property buyer mentioned tacked on an extra $20k to one house and also waived an “inspection of the plumbing, roof, foundation or any other part of the house.”
Strongest Housing Market Fueled by $40 Billion a Month Worth of Mortgage-Backed Securities
The spike in home values is not something that’s gone unnoticed, as the Federal Reserve has been being blamed for the unnatural price rises. Critics blasted the Fed about the situation back in March, as home prices across the U.S. jumped over 11% across the board. Redfin data had shown real estate was up 13% year-over-year on January 3, 2021.
S&P Corelogic Case-Shiller Index noted at the time, it was the “largest annual gain in nearly 15 years.” When the report was published on March 30, 2021, the Fed “held $2.2 trillion of agency mortgage-backed securities.”
The chief investment officer at Bleakley Advisory Group said the central bank “continued on autopilot” when discussing the Fed’s massive mortgage-backed securities (MBS) purchases. The MBS purchases the Fed has been overseeing continued throughout the month of April and also during the first two weeks of May.
In fact, Alex Roha from housingwire.com explains in a report on April 28: “Despite strong housing market, Powell says he wants to see ‘substantial further progress’” At the time, Fed Chair Jerome Powell and the Federal Open Market Committee met that month and the central bank noted rising inflation would be “transitory.” Powell also said that the bank needs to see a great economic improvement in order to start discussing tapering back monetary easing policy.
“We don’t have to get all the way to our goals to taper asset purchases, but we need to make substantial further progress,” the Fed Chair stressed during at a FOMC press conference that followed the meeting.
Housingwire.com’s report further reveals that the Fed is purchasing around “$40 billion of mortgage-backed securities a month.” It also quoted the Fed Chair when he said he is seeing the “strongest housing market that we have seen since the global financial crisis.”
“I would say that before the pandemic,” Powell said. “It was a very different housing market than it was before 2008. So we don’t have that risk of a housing bubble where people are over-leveraged and owning a lot of houses.”
The WSJ reporter Candace Taylor’s editorial, the rising home prices in the U.S., and the Fed fueling the MBS market for well over a year, highlights how the mortgage industry is seemingly being taken over by the Wall Street investors with connections to the Fed’s liquidity. The U.S. central bank has leveraged quantitative easing (QE) in such a way that the monetary supply (M1) expanded exponentially following the onset of the Covid-19 outbreak.
The Fed has recently tapered back some QE, removing $351 Billion in liquidity by using reverse repos (RRP). Despite the paltry M1 removal via three days worth of RRPs, the Fed’s New York branch plans to keep buying mortgage-backed securities until May 27, 2021.
What do you think about the Fed interfering in the real estate industry and boosting home prices across the board? Let us know what you think about this subject in the comments section below.