{"id":59783,"date":"2021-10-10T06:46:18","date_gmt":"2021-10-10T11:46:18","guid":{"rendered":"https:\/\/olduvai.ca\/?p=59783"},"modified":"2021-10-10T06:46:18","modified_gmt":"2021-10-10T11:46:18","slug":"heres-why-the-housing-market-has-gone-from-overheated-to-raging-inferno","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=59783","title":{"rendered":"Here\u2019s Why the Housing Market Has Gone from Overheated to Raging Inferno"},"content":{"rendered":"
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Here\u2019s Why the Housing Market Has Gone from Overheated to Raging Inferno<\/a><\/h3>\n<\/div>\n
\n
\"Here's<\/p>\n
Image credit: Creative Commons (CC0)<\/span><\/div>\n<\/div>\n

The housing market is on the verge of spinning out of control. Just about everything that\u00a0could<\/em>\u00a0be going wrong\u00a0is<\/em>\u00a0going wrong.<\/p>\n

The only holdout for the moment is home prices, which are up an astonishing 22.5%\u00a0just this year<\/em>. For many homeowners, that\u2019s great news. Home equity is a huge source of wealth for middle-class Americans. And when home prices are high (just like when stock prices are high), you feel wealthy.<\/p>\n

Unfortunately, like stocks, home prices can drop like a rock at a moment\u2019s notice. That\u2019s one lesson we learned all too well in 2008. Another Great Recession-type plummet in home prices forces many buyers underwater, stranding them with an asset they overpaid for and can no longer afford, and can\u2019t even sell.<\/p>\n

Let\u2019s start our brief examination of today\u2019s overheated housing market by taking a glance at how the Fed has been propping it up so far.<\/p>\n

How the Fed props up housing prices<\/strong><\/p>\n

The Fed employs various financial interventions to coax the economy in the direction they choose. We know the words: quantitative easing. Lowering interest rates. Repo and reverse repo. Obscure financial hocus-pocus that nevertheless moves markets worldwide.<\/p>\n

When it comes to the housing market, the Fed doesn\u2019t need to do anything fancy. They just create artificial demand for mortgage-backed securities (MBS, also known as one of the notorious \u201ctoxic assets\u201d that poisoned the U.S. in 2008).<\/p>\n

Mike Shedlock revealed the trick<\/a>:<\/p>\n

In a single week the Fed added $22 billion in mortgage backed securities, nearly all of which had a duration of 10 years or longer. This is an ongoing process despite major subtractions via reverse repos. In the process,\u00a0the Fed gooses housing by extending the duration of the assets<\/strong>\u00a0it does hold, effectively lowering long-term interest rates in the process.<\/p><\/blockquote>\n

\u2026click on the above link to read the rest of the article\u2026<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Here\u2019s Why the Housing Market Has Gone from Overheated to Raging Inferno Image credit: Creative Commons (CC0) The housing market is on the verge of spinning out of control. Just about everything that\u00a0could\u00a0be going wrong\u00a0is\u00a0going wrong. The only holdout for the moment is home prices, which are up an astonishing 22.5%\u00a0just this year. For many […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[18769,303,2340,426,7925,534,7926,3650],"class_list":["post-59783","post","type-post","status-publish","format-standard","hentry","category-economics","tag-birch-gold-group","tag-fed","tag-housing-market","tag-inflation","tag-mbs","tag-monetary-policy","tag-mortgage-backed-securities","tag-us-federal-reserve"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/59783","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=59783"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/59783\/revisions"}],"predecessor-version":[{"id":59784,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/59783\/revisions\/59784"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=59783"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=59783"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=59783"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}