“Not Again”: Could a $200B MBS Buying Plan Spark Another 2020-2022 Housing Frenzy in Northeast Florida?
This one made me cringe big time, because lower mortgage interest rates was what caused the buying frenzy in 2020 thru mid 2022. So when I read this, I was like nooooooooo. Let me back up and explain why.
Remember real estate is local, so I am referring to the real estate market in Northeast Florida. Covid hits, we shut down in mid March 2020. Houses under contract start to fall apart, because lenders don’t want to lend, and buyers are afraid of the uncertainty. Sales drop in April and May. I’m over here thinking that this is how the whole year will be, and the crash of 2008 is going to look like it was a walk in the park. June comes around and the real estate market bounces back. With a vengeance. Mortgage rates drop and the buyers are like hot diggity dog, let’s buy a house during a pandemic! Inventory levels start to drop and continue that pattern. Buyers are buying and sellers are selling, but not many, because they are worried about having potentially sick strangers in their home. Plus, where do they go when they sell? The choice of houses is dwindling. We were seeing rates in the 3s in 2020 and even lower in 2021. How did that happen? I’ll tell ya how it happened. The Feds were like holy mash potatoes Batman in the spring of 2020, the sky has finally fallen and if we don’t do something quick we could see a devastating effect of Covid, beyond being sick.
In plain English: mortgage rates are largely driven by the interest rate investors demand to hold mortgage bonds (called mortgage-backed securities, or MBS). In 2020, when Covid hit, investors got scared and markets got jumpy, so the Fed stepped in as a huge buyer to calm things down and push those rates lower, which were pushed lower than they ever have been pushed. In 2022 the buying of MBSs decreased significantly and rates stopped going down. Mid 2022 we saw the market start to stall. In my opinion, this should have occurred in 2021, because prices skyrocketed, and that is why housing has become unaffordable.
President Trump has instructed representatives of Fannie Mae and Freddie Mac to buy 200 billion dollars in mortgage bonds to drive the rates down and lower payments. So I was like heck no, we will see prices go crazy again. There is a difference tho……
The Fed’s MBS holdings rose by roughly $631 billion during 2020 (net), and other official reporting shows purchases reached hundreds of billions early in the pandemic and over a trillion by year-end (gross purchases). By comparison, the current proposal for Fannie Mae and Freddie Mac to buy $200 billion of MBS uses similar ‘bond math’—support MBS prices to ease rates, but at a smaller scale and through different institutions, which may limit the size and duration of the impact.
Some lenders are saying this will be a short lived and have a lower impact, that we may only experience a decrease of a quarter to half a percentage in mortgage rate drop. I want to see affordable mortgages for buyers, but we really can’t afford to see super low rates like we did in 2020 – mid 2022. Which I understand is frustrating.
Trump’s $200 Billion Mortgage Buying Spree ‘Unlikely’ To Move Rates Much
What’s your take—good idea or bad idea? Drop a comment and tell me what you think would happen in Northeast Florida.
