When the Federal Open Market Committee begins its two-day meeting on Tuesday, it ought to consider whether its policies aimed to bolster housing may be having negative side effects.
With the market for new and existing homes red hot, the rationale for subsidizing the mortgage market has largely passed. Indeed, the Fed’s policies may be hurting home affordability as much as they’re helping.
Strong housing and mortgage activity argues against the Fed effectively subsidizing a sector that is near bubble territory. According to the Home Price Appreciation Index from the American Enterprise Institute, prices are up 12.6% in the 12 months through March, a doubling of the pace from a year ago. Among various markets, Phoenix was up 17.7% while the smallest gain was in the New York metro area with a 7.0% rise.
“Monetary policy that supports the extension of easy money when house prices are rising at record rates makes no sense. It’s one thing to misread the tea leaves of an asset bubble, but it’s another thing to be the enabler,” Carson writes.
One way to stop inflating home prices would be for the Fed to reduce its purchases of mortgage-backed securities. If that suggestion sounds familiar, it’s because Peter Boockvar made it in this column back in December.