Since the housing and mortgage crash, there has been a great deal of discussion and government back-and-forth about reducing the size and influence of Fannie Mae, Freddie Mac and the Federal Reserve in the housing markets. As many may agree, a lot of talk in Washington D.C. may not mean much in the results department.
If you have a doubt about the statement that the Fed “is the housing market,” consider that since 2012 the Fed has essentially purchased all mortgage-backed securities issued. Since the U.S. market is the largest household debt market on the planet, this is crucial information. The Fed now owns roughly 12 percent of all home mortgages in the U.S.
Analysts differ in their views of the importance of the Fed in relation to the overall economy when interest rates are the topic. Some are convinced that the recent rises in interest rates are due more to concern over the health of the economy than the increase of $4 trillion in the Fed’s balance sheet. Market-watchers have been concerned with the involvement of investors in home price increases. Recently the percentage of home purchases by investors has held at around 30%. The concern is that the home price increases due to investor buying is just increasing asset inflation without rises in overall household income.
Basically, the concern is that the market has nowhere to go but down when the buying pressure from investors lessens. As prices rise, this is inevitable, as investors will not see the ROI they need and they’ll just stop buying. With household incomes suffering, there is no other major group of buyers out there to pick up the slack.
Since the housing and mortgage crash, there has been a great deal of discussion and government back-and-forth about reducing the size and influence of Fannie Mae, Freddie Mac and the Federal Reserve in the housing markets. As many may agree, a lot of talk in Washington D.C. may not mean much in the results department.
If you have a doubt about the statement that the Fed “is the housing market,” consider that since 2012 the Fed has essentially purchased all mortgage-backed securities issued. Since the U.S. market is the largest household debt market on the planet, this is crucial information. The Fed now owns roughly 12 percent of all home mortgages in the U.S.
Analysts differ in their views of the importance of the Fed in relation to the overall economy when interest rates are the topic. Some are convinced that the recent rises in interest rates are due more to concern over the health of the economy than the increase of $4 trillion in the Fed’s balance sheet. Market-watchers have been concerned with the involvement of investors in home price increases. Recently the percentage of home purchases by investors has held at around 30%. The concern is that the home price increases due to investor buying is just increasing asset inflation without rises in overall household income.
Basically, the concern is that the market has nowhere to go but down when the buying pressure from investors lessens. As prices rise, this is inevitable, as investors will not see the ROI they need and they’ll just stop buying. With household incomes suffering, there is no other major group of buyers out there to pick up the slack.