Has the Fed inadvertently launched a plan to cause the housing market crash?
(Update: Google's translation is funny and corresponds to April 1 so let's keep it a little laugh - but the content is real)
By flooding the market with money, the Federal Reserve accidentally pushed mortgage bankers to the brink of bankruptcy.
Fed, Federal Reserve, Jerome Powell, the housing market, the housing market crash
Reducing the Fed's interest rate and purchasing mortgage-backed securities by a quarter of a trillion results in a seismic sledge hammer industry. | Source: REUTERS / Carlos Barria / File File
The Federal Reserve has just bought $ 250 billion of mortgage-backed securities to bolster markets.
The move, however, caused a tsunami of marginal calls across the mortgage banker industry. Some warned that they could go bankrupt within days.
Gay buyers' demand has dried up and millions of mortgage delinquents are looming.
The Federal Reserve has in the past two weeks resurfaced the bozuka of stimuli in all markets. But there are some major collateral damage. By flooding the markets with money, they may have accidentally caused a crash in the housing market.
The Mortgage Bankers Association (MBA) warned of 'widespread disruption' in the housing market and accused the Fed of using 'sledging'.
Fed, Federal Reserve, Jerome Powell, the housing market, the housing market crash
Reducing the Fed's interest rate and purchasing mortgage-backed securities by a quarter of a trillion results in a seismic sledge hammer industry. | Source: REUTERS / Carlos Barria / File File
The Federal Reserve has just bought $ 250 billion of mortgage-backed securities to bolster markets.
The move, however, caused a tsunami of marginal calls across the mortgage banker industry. Some warned that they could go bankrupt within days.
Gay buyers' demand has dried up and millions of mortgage delinquents are looming.
The Federal Reserve has in the past two weeks resurfaced the bozuka of stimuli in all markets. But there are some major collateral damage. By flooding the markets with money, they may have accidentally caused a crash in the housing market.
The Mortgage Bankers Association (MBA) warned of 'widespread disruption' in the housing market and accused the Fed of using 'sledging'.
This is the system crash.
How the Federal Reserve almost broke the housing market
This is how it works. Mortgage bankers hedge themselves against rising interest rates. If the rates go up, the hedge makes sure they don't lose money from customers who are locked in at a lower mortgage rate.
It is a standard practice in the entire industry and almost never causes problems.
Up to now.
As part of the virus stimulus action, the Fed purchased $ 250 billion worth of mortgage-backed securities in two weeks. Perspectively, this dwarfs the amount they bought during the $ 80 billion housing crisis.
Now mortgage bankers are facing bankruptcy
By flooding the market with money, the Fed forced interest rates. The problem is that it just blew the fence.
Mortgage bankers now receive marginal calls and have to pay tens of millions of dollars to meet them. Even good discount lenders are on the verge of passing because of this. In a letter to regulators, the MBA wrote:
Mortgage calls to mortgage lenders reached incredible and unprecedented levels over the weekend. For a significant number of lenders, many of whom are well capitalized, these marginal calls nibble on their working capital and threaten their ability to continue operating.
The housing market is on the brink
This is not the only seismic shock in the housing market since the onset of the coronary virus epidemic. Demand for home purchases has faded over the past month. Year-on-year growth in the housing market has plunged from 27% in January and February to 1% in March.
Zillow, a resale buying company, has suspended all purchases.
Meanwhile, a record 3.3 million people were unemployed last week. Even with the $ 1,200 secured check, many households will not be able to pay the mortgage. A tsunami of criminals is approaching.
And just look at this chart that tracks Canadian commercial real estate. The price has collapsed because of the fear of wide defaults.
The Airbnb bubble just popped
The housing market is also collapsing under the tremendous reassurance of Airbnb rentals. When effective travel stops, Airbnb properties are empty. Anecdotal reports claim it is a bubble waiting for pop.
One reveals:
My neighbor is an Airbnb super host. She is on forums with other hosts. Many of them have 10+ mortgages. 0 guests are booking their properties. They ran out of money.
Many Airbnb hosts run sloppy empires, which are leveraged up to cheap mortgages. If the Coronavian virus epidemic drags on, many thousands default.
We are already seeing the effects that are shedding on the housing market. With no short-term bookings, Airbnb hosts flood the regular rental market. London only sees a 45% increase in rental hit the market. It is 64% in Dublin and 78% in the British tourist town of Bath.
The housing market is under pressure from almost every angle and cracks are starting to show. Let's hope it's not 2008 again.
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