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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

#231

Post by fatnoah »

glenstein wrote: post #119
refurb wrote: post #54

Earlier quoted context omitted.

I would be curious to see analysis for what home prices would be with 0 Fed intervention. It is an interesting thought experiment. From what I've gathered, any intervention by the government to make housing more accessible, just gets priced in pretty quickly, removing the benefit. For example, FHA offering 5% down payments instead of a standard 20%, just means every first time buyer can now pay 15% more (approximatel…

>just means every first time buyer can now pay 15% more (approximately) for a house Wait, what? Wouldn't it mean that a pool of prospective buyers that couldn't afford 20% but can afford 5% are now able to buy a house? That's a shift in the structure of the market rather than just a change being "priced in" for the same set of buyers. >In hot markets, the prices rise quickly to reflect that and everyone is in the sam…

It's definitely an interesting question. Increasing the pool of people able to buy a house increases demand, so that probably has some impact on the price.

Another factor is that people tend to think in terms of monthly payments, rather than overall price and interest rate. For example, I'm paying $1,500 in rent while saving $500/month for a mortgage. If the requirement for a down payment is removed, I may then think it makes more sense pay $2000/month for a house now with a low down payment than to keep trying to save a down payment while prices keep increasing.

FWIW, this is exactly what happened (with different numbers) when I bought my first house.

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

#232

Post by Red_Leaves_Flyy »

jcfrei wrote: post #176
Red_Leaves_Flyy wrote: post #110

Earlier quoted context omitted.

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

Globalization is certainly a very important factor but technology also has to be mentioned. In lots of industries it has massively reduced the bargaining power of the working people. Mostly because increasing output is much less dependent on labour than in the past.

Technology does not reduce labourers bargaining power. Legislating away workers protections, union busting, and allowing unchecked capitalism to depress wages while skimming the profits off the top and socializing the externalities reduces bargaining power.

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

#233

Post by sethammons »

disgruntledphd2 wrote: post #181
code4tee wrote: post #132

Earlier quoted context omitted.

If student loan debt was treated like any other debt then few if any students would get loans, unless their parents had assets to put up as collateral. So long as the financial burden of education falls on the student first then this is unlikely to change. From a financial perspective it’s a terrible product to sell... tons of money to someone with little to no financial assets, iffy prospects of sufficient future in…

Student loan treatment only changed in the mid-noughties (under GW Bush), how do you account for the existence of student loans before that?

Exactly. I started college in 2001 and while more pricey than it had been, I was able to secure loans at like 0% during school and then like 4% after. I’m not aware of the numbers for other years, but this seemed fair.

Then the loans were sold and came out at like 16%. This was painful. Not sure how that happened.

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

#234

Post by CydeWeys »

pc86 wrote: post #184
CydeWeys wrote: post #169

Earlier quoted context omitted.

Rochester is definitely cheap, but for a reason: It's a city on the down slope past its peak. It's a deindustrialized rust belt city with a population down 38% from its pre-WWII high. That goes a long way to explain why housing is so affordable. And I wonder what the tech job situation is like there (though that may matter less now, what with the pandemic increasing the acceptability of WFH). It's hard to move somewh…

> It's hard to move somewhere for cheap housing where you literally wouldn't know a single person, though. Social life is important. And this is fine, but it seems very disingenuous to say that it's a crime that you can't afford to buy a home when you refuse to move out of arguably one of the most expensive cities in the country. It's equivalent to crying about not being in the 1% when you're in the top 1.5%, and you…

> but it seems very disingenuous to say that it's a crime that you can't afford to buy a home

It's also very disingenuous to misrepresent other people's statements like this. Literally no one is saying it's a crime.

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

#235

Post by vonmoltke »

pnutjam wrote: post #200
vonmoltke wrote: post #127

Earlier quoted context omitted.

> In my country (the Netherlands), student loans are given by the government. Over 90% of American student loans are also issued by the federal government.

My daughter got a scholarship that covers her tuition 100%, so she only needed loans to cover room and board. Federal oans were still not enough to cover this, in one of the least expensive state schools. My credit sucks and we didn't qualify for a cosigned loan to cover the extra. Luckily the school offers a reasonable payment plan and I'm taking advantage of that. She is just living in a dorm with a standard meal p…

> My credit sucks and we didn't qualify for a cosigned loan to cover the extra.

I assume by that you mean the parent PLUS loan? Yeah, the federal loan limits outside the PLUS program are pretty low, especially for underclassmen. I don't have any statistics, but I suspect most of the Department of Education's newly-issued debt (by dollar amount) is in PLUS loans since those cover the full cost of attendance.

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

#236

Post by charlesu »

crisdux wrote: post #217
black_puppydog wrote: post #179

Earlier quoted context omitted.

> Governments do not have a history of distributing scarce resources effectively. To be fair, "various market forces" also don't have the best track record of distributing resources, especially scarce ones. Somehow those always end up being "distributed" into the same few hands...

To be fair, how is that even remotely true? Look at the wealth, convenience, leisure and abundance all around you. Even people with lower income experience high standards of living. The system we have now is not without fault, but it has done better than any other before in meeting our needs and desires. I don't understand why people make wild claims that everything is distributed to only a few hands, thats preposter…

> Look at the wealth, convenience, leisure and abundance all around you. Even people with lower income experience high standards of living. The system we have now is not without fault, but it has done better than any other before in meeting our needs and desires.

You should spend some time in Appalachia if you think that's true.

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

#237

Post by charlesu »

mrfusion wrote: post #151
b34r wrote: post #137

Out of curiosity, why wouldn’t we want the government managing mortgages for the whole country? (Assuming the acquisition process isn’t slow AF because government.) Real estate seems like a pretty important part of the economy and, more importantly, the government artificially making housing more accessible for potential first time buyers creates a virtuous cycle where people can finally save money and the eventually…

It didn’t go so well with college loans. Any market government gets into gets distorted.

Maybe higher education shouldn't be a market.

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

#238

Post by felipe_ii »

I don't understand what is being used as the denominator to generate this 1/3 number in the headline. A quick search shows that the US MBS market is about $10.3 trillion in size [1] - the actual mortgage market is larger (what nostromo mentioned earlier). Putting some recent numbers [2] over the size of the MBS market would show that the Fed owns a little less than a 1/5 of all US MBS.

Also, he mentions that the Fed has been purchasing roughly $100 billion per month in MBS securities since April, but this leaves out the fact that a non-insignificant number of MBS in their holdings are either i) reaching maturity, or ii) being prepaid. The second issue is more prevalent now - with the low-rate environment that exists in the US many people are refinancing their mortgages to take advantage of lower rates, but in any case it isn't uncommon for mortgages to be paid off before their maturity date. I don't know what the net figures are, but what I'm trying to say is that purchases of MBS != growth of MBS holdings.

I seriously think this author has somehow conflated the size of the SOMA assets with the size of the MBS market - continuing growth of MBS at $100 billion for the rest of the year, leaving all else equal, will give us about $2.4 trillion of MBS over a denominator of $7.4 trillion - which would give us about 1/3.

[1]: https://www.sifma.org/resources/research/fixed-income-chart/ [2]: https://www.federalreserve.gov/releases/h41/current/

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

#239

Post by wahern »

ynniv wrote: post #166
wahern wrote: post #108

Earlier quoted context omitted.

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.

The high growth countries had been destroyed in a war.

See my reply to jeffreyrogers: WWII reconstruction can't explain the 1990s and 2000s, which are far removed from that era, with the possible exception of German Reunification. The trends are consistent and robust across various periods.

Perhaps the other countries are more supply constrained than the U.S., especially post reconstruction. But that also refutes the insinuation that U.S. monetary policy is responsible for price inflation, and makes less credible the fears of some younger Americans that the bottom will fall out irreversibly the moment they make a home purchase.

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

#240

Post by jdm2212 »

rorykoehler wrote: post #96
jdm2212 wrote: post #32

Earlier quoted context omitted.

There's no impact because people are sitting on cash rather than spending it. What the Fed accomplishes by handing out the $1 trillion is this: they kept all the _other_ money circulating. If people wanted to hoard $1 trillion because they're scared about the future, well, now they've hoarded it. They feel safe and they spend the rest of their money, and the economy keeps humming along. If instead they'd tried to hoa…

If the Fed create $1T new money the worst thing you can do is sit on cash. That’s a guaranteed negative return.

No, the guaranteed negative return is only if you expect rising inflation. Whether $1T in new money turns into inflation depends on what people choose to do with the new money. If they're all terrified about economic uncertainty, they won't spend the new money, and there won't be inflation.

But you're right insofar as the Fed is trying to change inflation expectations by printing money. But so far they've failed because no one believes they'll actually let inflation happen once the economy recovers. Hence Jerome Powell's recent statements about the Fed changing how it trades off inflation against economic growth. It's a way to more credibly commit to letting inflation actually happen.

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