djd09
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- May 20, 2009
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Former Federal Reserve Chairman Ben Bernanke was correct in saying at the time* that there had never been a decline in housing prices on a nationwide basis. What he was oblivious to was that home prices were rising nationwide faster than they ever had because his predecessor, Alan Greenspan, had brought the federal funds rate down to 1 percent. By mid-2007 the housing market party was over and prices began a four-year nationwide decline.
Fast-forward to 2015: The Fed has learned that you can reheat an economic souffle. We are in the midst of another housing bubble driven by Ben Bernanke and Janet Yellen’s fed funds rate at zero percent and massive doses of quantitative easing (QE) that involved the Fed buying $85 billion a month worth of mortgage-backed securities and U.S. Treasury securities.
The dark side
Although the Fed and others cheer on the rise in housing (and stock market) prices as good for homeowners and the economy, there is a dark side to rising home prices.
Rising home prices:
• Are artificial
The current surge in home prices is not driven by strong economic fundamentals such as higher productivity, wages and labor participation rates, but rather by artificially low interest rates orchestrated by the Federal Reserve’s zero interest rate policy and quantitative easing programs.
Bernanke admitted as such when he testified to Congress in July 2013 during his tenure: “I don’t think the Fed can get interest rates up very much, because the economy is weak, inflation rates are low; if we were to tighten policy, the economy would tank.” Interest rates are still at zero, presumably because the economy is not quite ready to stand on its own without artificially low interest rates.
Home prices are artificially rising by Fed design. So, who cares? Higher housing prices, no matter how generated, are a good thing, right?
• Lower housing affordability
https://www.inman.com/2015/04/01/the-dark-side-of-rising-home-prices/
Fast-forward to 2015: The Fed has learned that you can reheat an economic souffle. We are in the midst of another housing bubble driven by Ben Bernanke and Janet Yellen’s fed funds rate at zero percent and massive doses of quantitative easing (QE) that involved the Fed buying $85 billion a month worth of mortgage-backed securities and U.S. Treasury securities.
The dark side
Although the Fed and others cheer on the rise in housing (and stock market) prices as good for homeowners and the economy, there is a dark side to rising home prices.
Rising home prices:
• Are artificial
The current surge in home prices is not driven by strong economic fundamentals such as higher productivity, wages and labor participation rates, but rather by artificially low interest rates orchestrated by the Federal Reserve’s zero interest rate policy and quantitative easing programs.
Bernanke admitted as such when he testified to Congress in July 2013 during his tenure: “I don’t think the Fed can get interest rates up very much, because the economy is weak, inflation rates are low; if we were to tighten policy, the economy would tank.” Interest rates are still at zero, presumably because the economy is not quite ready to stand on its own without artificially low interest rates.
Home prices are artificially rising by Fed design. So, who cares? Higher housing prices, no matter how generated, are a good thing, right?
• Lower housing affordability
https://www.inman.com/2015/04/01/the-dark-side-of-rising-home-prices/
