Despite surging home prices that are rising at the fastest pace on record, the Federal Reserve continues to prop up the housing market by purchasing $40 billion of mortgage bonds each month.
And while the Fed is finally “talking about talking about” removing some of its support, some fear the US central bank is creating another housing bubble as it deliberates.
That’s because the Fed’s emergency strategy is artificially lowering the cost of mortgages, and further boosting prices that already looked stretched in many markets.
“The Fed just continues to pour more gasoline on that fire,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.
Of course, the central bank certainly deserves credit for its historic efforts to prevent the Covid recession from morphing into an all-out depression.
“House prices are exploding right now. Everything in the housing sector is going up in price,” Jason Furman, a former top economic adviser in the Obama administration, told CNN’s Poppy Harlow. “It probably isn’t the case that the Fed should be continuing to artificially hold mortgage rates down.”
Danielle DiMartino Booth, a former Fed official, agreed that the most obvious starting point for the Fed to begin to remove stimulus is on the mortgage front. “Ultra-low mortgage rates have helped feed a frenzy in housing,” said Booth, who is now CEO and chief strategist at Quill Intelligence.