As safe as houses
The Fed is walking an impossibly thin tightrope between controlling inflation and collapsing the housing market.
Last month, the Federal Reserve Bank of Dallas sounded the alarm on the housing market. “There is growing concern that U.S. house prices are again becoming unhinged from fundamentals,” wrote their economists in a piece called Real-Time Market Monitoring Finds Signs of Brewing U.S. Housing Bubble. They are right, if not a bit late to the party. Over the last 18 months, your author has penned nine pieces on the growing housing bubbles worldwide, analysing everything from what is causing them to how big they are.
During the Federal Open Market Committee’s (FOMC) March meeting, Fed officials suggested it “would be appropriate” to consider selling mortgage-backed securities (MBS) to combat rising inflation and cool the housing market in the U.S. They said that in the context of rising mortgage rates and shrinking refinancing volumes, getting these securities off their balance sheet made sense but that any decision “would be announced well in advance.” This announcement was enough to get mar…