How the Fed destroyed the Housing Market
The Federal Reserve destroyed the US Housing Market over the last 20 years. Creating two big Housing Bubbles in 2008 and 2023. And making it so the regular homebuyers in America can't afford a house.
This all started in the early 2000s when Alan Greenspan, then chair of the Fed, did a historic interest rate cut. Cutting them from 6.0% in 2000 to 1.0% in 2003. What followed was two decades of historically low interest rates that caused Home Prices to spike above fundamentals.
And by fundamentals I mean one thing: incomes. History of the US Housing Market shows that incomes and wages are what ultimately drive home prices in the long run. And right now the unfortunate situation the Housing Market is in is that home prices have grown by 92% adjusted for inflation. While incomes have only grown by 24%.
That differential is why you look on Zillow and see home prices that feel so expensive. Your incomes and wages haven't kept up. And ultimately it's not sustainable. And ultimately it was Fed suppression of interest rates that allowed these prices to go up above the the fundamentals of income and wages.
And now that interest rates are going up due to Jerome Powell's interest rate hikes, home prices have started to come down. But many participants in the housing market - Wall Street investors, home builders like DR Horton - do not take Powell's rate hike seriously. They think that the Fed will pivot and cut rates. And that the 2023 Recession won't be that bad.
Which is why a company like DR Horton is offering its homebuyer 5.2% Mortgage Rates when the prevailing Mortgage Rates in the market are 6.6%. They want to keep the home sales volume high even if it lowers their profitability. In the hope that eventually the Fed will cut rates and make the market normal again.
But will the Fed cut rates? Betting markets don't think so. The CME Fed Watch Tool suggests that there's an 80% chance of a rate hike at the next Fed meeting. And that by the end of 2023 the federal funds rate will still be 4.50-4.75%.
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DISCLAIMER: This video content is intended only for informational, educational, and entertainment purposes. Neither Reventure Consulting or Nicholas Gerli are registered financial advisors. Your use of Reventure Consulting's YouTube channel and your reliance on any information on the channel is solely at your own risk. Moreover, the use of the Internet (including, but not limited to, YouTube, E-Mail, and Instagram) for communications with Reventure Consulting does not establish a formal business relationship.
Image(s) and/or Footage used under license from Shutterstock.com. https://www.shutterstock.com/
Additional stock footage provided by Envato Elements. https://elements.envato.com/
Видео How the Fed destroyed the Housing Market канала Reventure Consulting
This all started in the early 2000s when Alan Greenspan, then chair of the Fed, did a historic interest rate cut. Cutting them from 6.0% in 2000 to 1.0% in 2003. What followed was two decades of historically low interest rates that caused Home Prices to spike above fundamentals.
And by fundamentals I mean one thing: incomes. History of the US Housing Market shows that incomes and wages are what ultimately drive home prices in the long run. And right now the unfortunate situation the Housing Market is in is that home prices have grown by 92% adjusted for inflation. While incomes have only grown by 24%.
That differential is why you look on Zillow and see home prices that feel so expensive. Your incomes and wages haven't kept up. And ultimately it's not sustainable. And ultimately it was Fed suppression of interest rates that allowed these prices to go up above the the fundamentals of income and wages.
And now that interest rates are going up due to Jerome Powell's interest rate hikes, home prices have started to come down. But many participants in the housing market - Wall Street investors, home builders like DR Horton - do not take Powell's rate hike seriously. They think that the Fed will pivot and cut rates. And that the 2023 Recession won't be that bad.
Which is why a company like DR Horton is offering its homebuyer 5.2% Mortgage Rates when the prevailing Mortgage Rates in the market are 6.6%. They want to keep the home sales volume high even if it lowers their profitability. In the hope that eventually the Fed will cut rates and make the market normal again.
But will the Fed cut rates? Betting markets don't think so. The CME Fed Watch Tool suggests that there's an 80% chance of a rate hike at the next Fed meeting. And that by the end of 2023 the federal funds rate will still be 4.50-4.75%.
---
REVENTURE APP: https://www.beta.reventure.app/dashboard
INSTAGRAM: https://www.instagram.com/reventure_consulting/
TWITTER: https://twitter.com/nickgerli1
DISCLAIMER: This video content is intended only for informational, educational, and entertainment purposes. Neither Reventure Consulting or Nicholas Gerli are registered financial advisors. Your use of Reventure Consulting's YouTube channel and your reliance on any information on the channel is solely at your own risk. Moreover, the use of the Internet (including, but not limited to, YouTube, E-Mail, and Instagram) for communications with Reventure Consulting does not establish a formal business relationship.
Image(s) and/or Footage used under license from Shutterstock.com. https://www.shutterstock.com/
Additional stock footage provided by Envato Elements. https://elements.envato.com/
Видео How the Fed destroyed the Housing Market канала Reventure Consulting
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