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The Fed now owns nearly 1/3 of all U.S. mortgages

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Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#101

Post by rocqua »

rebuilder wrote: post #88
wonder_er wrote: post #86

Earlier quoted context omitted.

> Also, I don't understand how millennials aren't supposed to see this figure and immediately feel a sense of rejection Millenial here. 100% agreed with this. Feels like a big blind spot in the boomer crowd. They don't seem to see the seething, roiling, overpowering resentment their entire generation is receiving from many, many people that currently don't have much power in society . A politician wants to win office…

What would the effects of changing the student loan system be? I assume you mean to increase the creditor's risk to levels comparable to other types of debt. Personally, I'd expect that to result in higher interest rates for student debt, and more stringent eligibility requirements. IOW, a higher barrier to entry to education. Maybe that would be good, it depends on how the price of education would react, and in whet…

If you want to make student loans more accessible, the trick is not to stimulate student loans be legalizing the loan-sharking of students. This way you are just encouraging students to take a bad deal. You are making the system more accessible by offering really bad options.

If the reasoning is "It is a good idea to have high education", then stimulate that directly. At the very least, have government-backed or government-supplied loans. And ensure those loans have reasonable terms.

I know australia has an interesting system.

In my country (the Netherlands), student loans are given by the government. They are hard to get rid of, _but_ the repayment terms are very very lenient. Very low interest rates (either 0% or the current 10 year government bond rate); a maximum monthly payment of 30% of what you make above minimum income; debt forgiveness after 30 years; the ability to pause repayment for 2 years in total.

I am not a big fan of this system (I still think it is too burdensome on students) but it sure seems a lot more reasonable than the US system. Even though this is also a form of debt that cannot be cleared by bankruptcy, the generous repayment terms really help. The trick here is that the government is willing to take a slight loss (through the 30 year debt-forgiveness) on repayments. Though that the moment, since our 10 year bonds have negative interest, the student loans might be making a profit for our government. Still I am not going to complain about a loan with 0% interest.

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#102

Post by lkrubner »

JMTQp8lwXL wrote: post #18

I would be curious to see analysis for what home prices would be with 0 Fed intervention. Also, I don't understand how millennials aren't supposed to see this figure and immediately feel a sense of rejection, that the housing market is some form of a pyramid scheme, where you had to get in early to have a chance.

Prices would be very low and unemployment would have averaged 50% for the last 12 years.

I’m half joking, but if the Fed did nothing then we would still be in the middle of the Great Recession. Or consider the British “Great Depression” of the late 1800s — that lasted 20 years because the pound was over-valued.

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#103

Post by Schiendelman »

AstralStorm wrote: post #94
rebuilder wrote: post #90

Earlier quoted context omitted.

This is a side effect of urbanization. Economic opportunity is increasingly concentrated in cities and the increased demand inevitably increases the cost of housing. If that cost becomes too high relative to the income increase gained by living in, say, SF, people will certainly move elsewhere. But they'll still largely move to cities, and the cycle will just repeat there.

No it isn't. There's tons of free space surrounding cities, including with developed infrastructure and support. The demand driven forcing is miniscule compared to artificial scarcity due to zoning permits or bad infrastructure. (Typically slow transportation.)

Not just surrounding cities - to your point, above them. All those single family neighborhoods. All those new buildings built to 6 stories instead of 60.

In Seattle, basically every building built is built to the maximum zoning allows. And it’s all arbitrary - purely about the whims of the local homeowners.

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#104

Post by PopeDotNinja »

the-dude wrote: post #40
remote_phone wrote: post #5

I just refinanced my 30-year fixed mortgage for 2.5%. The rate is utterly ridiculous now. If we get even a modicum of inflation over the next few years, I will be paying negative real interest rates.

I was paying 0.6% for the last years ( Euribor mortage ). Some people in North West Europe actually had negative rates already.

How do negative mortgage rates even work? My brain doesn’t understand that. Does the bank make money on fees or something? -1% mortgage rate and 3% in processing fees?

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#105

Post by rocqua »

donmcronald wrote: post #26
throwaway4good wrote: post #17

Earlier quoted context omitted.

The fed can keep interest rates low; it is literally what they are doing by buying the bonds. In principle you should see higher inflation and a falling currency. However this policy (aggressive buying of all kind of bonds) has been persued by the Europeans and Japanese for years and it haven't really caused a collapsing currency or high inflation. Some may argue that it suspends a natural reallocation of resources i…

If you print money, but only give it to the top 10% who use it to prop up the stock market, does that cause inflation? I don't understand how America can pump a couple trillion dollars into the economy and it doesn't seem to have any impact. If the average person is getting any of that it should cause inflation, shouldn't it?

> If the average person is getting any of that it should cause inflation, shouldn't it?

That seems to be roughly correct. And yet, we are not seeing inflation.

The conclusion seems easy to me (perhaps too easy). The average person is not seeing much of that money being printed. Instead, all of that money seems to be causing massive inflation in the stock market. The S&P500 and other similar indexes are incredibly high.

This is not caused by their expected cash flows growing. Instead, it is is caused by the expected returns of other money falling. Hence the expected 'time discounted cash flows' are increasing, simply because the discount rate is falling. Or, in simpler terms, stocks prices are rising because people with a lot of money to spare need to put that money somewhere. And these people are getting a lot of extra money.

This effect is not a total waste. It should mean it becomes easier for new ventures to raise money on the markets. This could enable the creation of new businesses and innovation.

However, it could be a lot more effective to give this money to people who would do more with it than try and find a place to store it where they can still make some money of off it.

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#106

Post by gridlockd »

onlyrealcuzzo wrote: post #53
im3w1l wrote: post #27

Earlier quoted context omitted.

Banks lending to people who cannot pay, and then selling the bonds to the fed. This becomes a handout both to banks, and anyone with lending access. In the real economy it means that people will start -EV (negative expected value) projects. Because heads you win, and tails you default.

That works for bank executives, not shareholders or individuals.

It's really more diffuse than that. These measures drive down corporate bond yields across the board, giving them access to capital to use less wisely, or to operate in zombie mode, being unprofitable but never defaulting due to perpetually cheap debt.

The corollary of this situation is that the Fed must not allow debt rates to rise, otherwise an enormous wave of corporate defaults within a short timeframe would ensue.

This also explains why markets keep rising even when the economy is in shambles. The Fed will be a buyer of last resort for everything (the "Powell Put"). Yields are near zero for everything "safe", the money in the funds has to go somewhere, so it goes to assets like stocks and corporate bonds. Stock prices go up, bond yields go down. Corporations can get cheap debt to buy back their own stock.

Meanwhile, the Fed can act like there's no inflation because the CPI doesn't reflect these capital flows, at least not in the average. However, if you split up the CPI, you see significant inflation in some areas, whereas you see natural deflation (due to better productivity/technology) in other areas.

The individual or the mom-and-pop store indeed do not have access to this capital, they are footing the bill.

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#107

Post by havetocharge »

AstralStorm wrote: post #94
rebuilder wrote: post #90

Earlier quoted context omitted.

This is a side effect of urbanization. Economic opportunity is increasingly concentrated in cities and the increased demand inevitably increases the cost of housing. If that cost becomes too high relative to the income increase gained by living in, say, SF, people will certainly move elsewhere. But they'll still largely move to cities, and the cycle will just repeat there.

No it isn't. There's tons of free space surrounding cities, including with developed infrastructure and support. The demand driven forcing is miniscule compared to artificial scarcity due to zoning permits or bad infrastructure. (Typically slow transportation.)

There's a degree of purpose to artificial scarcity though. If construction is completely unchecked, then the demand, and load on infrastructure can reach a point where it becomes unusable to everyone,old and new residents.

I've lived in Toronto for a long time, and after pockets of th city got rezoned and high-rise construction was allowed, it created a situation where it was not possible to get onto public transit during peak hours, and people resorted to walking to work for 45 min instead of their planned 15 min commute when they brought their condos pre-construction. Similarly the growth of immediate Toronto suburbs has been so immense, that it is not possible to get a seat on the subway if you don't board at the terminus station (as suburbanites fill them). The city is addressing these problems through transit expansion, but it is taking decades for each project to complete (example https://en.m.wikipedia.org/wiki/Line_5_Eglinton).

The main point is, zoning in a vacuum is not evil, or if more palatable, a necessary evil.

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#108

Post by wahern »

baconandeggs wrote: post #71
JMTQp8lwXL wrote: post #18

I would be curious to see analysis for what home prices would be with 0 Fed intervention. Also, I don't understand how millennials aren't supposed to see this figure and immediately feel a sense of rejection, that the housing market is some form of a pyramid scheme, where you had to get in early to have a chance.

Just look at the chart on page 20 of this Fed paper (the Fed was created on 1913, the fiat dollar became the global reserve currency in the 70s after years of debasement to pay for the cold war, vietnam, etc.) https://www.dallasfed.org/-/media/documents/institute/wpaper...

Perhaps the better chart is on page 21 (Figure 16), where as compared to all the other countries surveyed the U.S. is at the far low end of housing price inflation. In fact, unless I'm missing something it comes in dead last among all 14 countries at the end of the sample period, 2012.

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#109

Post by peterwwillis »

remote_phone wrote: post #5

I just refinanced my 30-year fixed mortgage for 2.5%. The rate is utterly ridiculous now. If we get even a modicum of inflation over the next few years, I will be paying negative real interest rates.

So.... Is it a stupid time to get a mortgage and buy a house, or a fantastic time?

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#110

Post by Red_Leaves_Flyy »

alisonkisk wrote: post #76
JMTQp8lwXL wrote: post #31

Earlier quoted context omitted.

Inflation for luxury goods or the types of things the 10% buys (which has some overlap with everyone else: they too, need food, housing, etc). But most households don't need more than 1 washing machine. So you gift any amount to the top 10%, but washing machine prices aren't going anywhere.

Healthcare, education, housing prices go somewhere though.

Just about every thing limited by domestic labor has been inflating for decades.
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