Vital Statistics:
Stocks are higher as we head into Fed week. Bonds and MBS are up.
The big event this week will be the FOMC meeting on Tuesday and Wednesday. The markets don’t expect the Fed to make any changes to the Fed Funds rate, however the language of the press release will be critical, especially if it refers to risks to the upside on inflation which would open the door for future rate hikes.
Aside from the Fed meeting, we will get a lot of important economic data with house prices on Tuesday, ISM data, and the jobs report on Friday.
The problem of high house prices is a knotty one, which was driven by bad economic and monetary policy. We printed a lot of money, following the typical Great Depression / Great Recession playbook. That money went into real estate speculation.
Now some politicians are trying to pin the blame elsewhere, blaming professional real estate investors. They want to force investors to sell their portfolio to families. They blame the Blackrocks of the world for driving up home prices. The thing is, the vast majority of rental properties are owned by people with 1 – 9 properties.
There are about 144 million housing units in the United States. How many are owned by professional investors? Not many. The biggest publicly traded rental housing REIT is American Homes 4 Rent. How many units do they own? Just under 60k. Note that these REITs are also building houses for rent, so they are adding to supply and not outbidding anyone.
The bottom line is that this is “Something Must Be Done! This is Something!” legislation which won’t have any effect on home prices or supply.
The problem of housing prices was due to a simple policy error. During COVID, the US government flooded the system with stimulus money, and the Fed pushed down interest rates to the floor. This is the general playbook for fixing an economy that just experienced an asset bubble.
While COVID was a shock to the economy, the economy itself was in pretty decent shape beforehand, and we didn’t experience a stock or real estate crash. Consumers’ and banks’ balance sheets were in good condition to begin with, and that extra stimulus attempted to fill a hole that didn’t exist.
Instead of prodding depressed consumers into spending, we just soaked the economy with cheap money, and it found its way into real estate speculation, driving up prices. Blackrock didn’t cause house prices to rise 20%. Policy mistakes did.
I talk about this process in my latest Substack. Check it out and please consider subscribing.
The battle between United Wholesale and Hunterbrook Media escalated with a report out of Hunterbrook claiming that UWM put together a shell company called UMortgage which “sets prices to make UWM look cheaper than competitors, claims a former employee who filed an internal complaint related to the company’s finances and was then terminated.” UMortgage sent most of its business to UWM. Essentially Hunterbrook is claiming this was evidence of collusion.
The Daily Tearsheet 