How Does the Federal Government View the Rising Price of Homes?

This new year began with the same news of rising prices of homes. In today’s article, Steve Saretsky weights in on the remarks and comments made from members of the federal government regarding the future of the real estate market and what are possible effects and solution options.

Latest on Canadian Real Estate Market Trends by Steve Saretsky

Just this past week, a chorus of central bankers made statements outlining their radical ideas for the future, all of which have major impacts not only on markets but on our standard of living.

Let’s start with Dominic Purviance, a senior financial specialist at the Federal Reserve Bank of Atlanta. Mr. Purviance suggested people earning the median income can no longer afford the median-priced new home, costing $323,000 in the US last year. “That’s a radical shift in the market,” Mr. Purviance said. “What we may have to prepare for in the future, is that buying a new home, and in some markets even buying an existing home, may become a luxury.”

Of course very few have actually questioned the extent of monetary policies that have helped stoke these issues. A decade of ultra-loose monetary policy has pushed home prices to new highs and driven inequality to extremes. The federal reserve has cut interest rates three times over the past year and re-engaged in “Not QE” by expanding its balance sheet $414B since August.

Adding to the lunacy this past week, Former Federal Reserve Chairman Ben Bernanke said the Fed should also consider adopting some of the tools employed by other central banks, including yield curve control out to two years and funding for lending programs. He counseled the Fed against ruling out the possibility of pushing short-term interest rates below zero, despite overwhelming evidence that negative interest rates are detrimental to the banking system and a parasite on society.

No matter what approach the Fed adopts to fight future recessions, longer-term yields will probably spend extended periods of time at zero or below, according to Bernanke. Suggesting, “Low inflation can be dangerous. Consistent with their declared ‘symmetric’ inflation targets, the Federal Reserve and other central banks should defend against inflation that is too low as least as vigorously as they resist inflation that is modestly too high.”

The good news, as New York Fed President William Dudley concluded, if you’re on the housing ladder, you have the green light to spend. “While economic shocks are, by their very nature, difficult to forecast, the risk that the Fed will snuff out the expansion anytime soon seems quite low because inflation is simply not a problem.”

Dudley encouraged homeowners to find “prudent” ways to tap into the equity that has built up in their homes. “Whatever the timing, a return to a reasonable pattern of home equity extraction would be a positive development for retailers, and would provide a boost to economic growth.”

In other words, the Fed has your back, Party on!

Three Things I’m Watching:

1. Low-interest rates are causing Germans to save more & more money. Retail bank deposits have hit fresh all-time highs at €2.41tn despite banks start passing on the cost of negative rates to their depositors. 25% of deposits are subject to NEGATIVE NOMINAL interest rates.

2. Fed balance sheet has risen another $8bn in the week to New Year as Powell keeps printing press rumbling to calm repo market. Total assets have gained a whopping $414bn since the 2019 low in August.

3. Homeowners across Greater Vancouver were greeted with an unpleasant surprise to start the New Year as tax assessment values fell by double digits.