- The Fed bought a record amount of mortgage-backed securities last week.
- Its MBS buying spree in March triggered $5 billion in margin calls on routine hedges lenders place against rising interest rates– an existential threat to lenders.
- Apparently, crashing home prices are an even bigger threat in the Fed’s view. The scale of its housing market intervention rivals the 2008 crisis.
The Federal Reserve bought an unprecedented amount of mortgage-backed securities last week. Otavio Costa, a portfolio manager at Crescat Capital, noted that the housing market accounted for 84% of the central bank’s most recent stimulus.
I thought the housing market wasn’t the problem this time.
Mr. Costa could be forgiven for thinking the housing market wasn’t the problem this time.
Industry analysts have found many reasons to be bullish on housing. Or at least, to assure us that the housing market is different today than it was during the 2008 subprime mortgage crisis.
Housing Market Intervention Rivals 2008 Crisis
Skylar Olsen, senior principal economist at Zillow, expects a modest 2% – 3% dip in home prices by October. She says the market is different now than when it crashed in 2008:
Right now, housing markets are much more resilient. We had tight credit leading into this, we were not building excess homes, and we had a large generation of millennials who wanted to buy homes for pregnancy and marriage and life reasons, not just financial ones or anything else.
Brad Cartier, a real estate investor in multi-family homes, argued this week that all the macro indicators look healthy for the housing market.
But if the residential real estate market is so sound, why did mortgage-backed securities make up 84% of the Fed’s recent buying spree? The Fed is hoovering up MBS at levels unseen…