A guest essay published in The New York Times on Tuesday finally pointed a finger at a major culprit behind the housing crisis: The Federal Reserve.
The essay was written by Westwood Capital Investment bank’s managing partner Daniel Alpert, and detailed his take on the Fed’s “relentless attack on inflation” which he thinks is jeopardizing the market. Alpert decries the Fed’s decision to raise key federal funds policy interest rate to a level 22 times what it had been in the year and a half prior.
In normal times, this type of action would make mortgages insanely expensive for homeowners and make homes a lot cheaper, which limits spending power. But Alpert rightly notes these aren’t normal times. As mortgage rates skyrocketed from around three percent to the near eight percent it is now, it caused a catastrophe for the housing market.
Homeowners with good interest rates don’t want to move. And new buyers don’t want to get locked into an overpriced home at a high interest rate. So we have “both a mobility and an inventory crisis,” as Alpert put it.
Real Estate ‘Apocalypse’ Could Destroy American Economy, Midsize Cities | @DailyCaller
— KAY SMYTHE (@KaySmythe) August 28, 2023
Housing has helped ensure the cost of just about everything has increased in 2023. “It is an irony that the Fed’s effort to tamp down inflation is causing an increase in core inflation measures,” Alpert notes. “And while the Fed is chasing its own tail, other avenues for controlling inflation have weakened considerably as a result of the unique circumstances surrounding the pandemic.”
The pandemic allowed for Americans to increase their savings rates. And many businesses were locked into cheap financing. So, what happens next?
Alpert thinks the Fed should declare victory and give up on its target of two percent. But the likelihood of that is low. Instead, Alpert wants the Fed to halt and then reverse policies related to mortgage securities and Quantitative Tightening. In layman’s terms, the Fed has to reduce the cost of mortgages or we’re doomed.
News and commentary writer.
EDITORS NOTE: This Daily Caller column is republished with permission. ©All rights reserved.