The FED's Frankenstein

 Around two years ago the FED administered their emergency bond buying back program and currently it is a big part of the overall issue that is the current housing market.  Monthly, the FED has over $40 billion mortgage backed securities purchases which is the equivalent of the entire new home market last year, with over 750,000 new homes built and an average price of $453,700.  In addition, talks of potentially increasing interest rates are already affecting a rise in mortgage rates, but with the housing market being about 40% of CPI it will not be enough to deter the exuberantly high home prices.  

The sustainability of these rising home prices comes into question, homes are rising at nine percent a year which is almost doubled than a rate that could be called sustainable.  Furthermore, the rents of apartments and other markets are seeing increases of ten percent or higher every year which is also almost doubled the usual rate.

Since the FED owns a significant portion of these treasury and mortgage markets we cannot expect to see much change until they reduce their own economic footprint, as their balance sheet grows larger the best solution they have given is to slowly let these bonds reach maturity and sell them off in a quantitative tightening manner.  

This is where the Frankenstein idea comes into play because knows almost nothing about what it has created, QT is meant to decrease liquidity within the economy so if this happens then consumers will have less buying power right as soon as supply starts to increase.  Estimating it would take roughly five years for the FED to sell its bonds, but who knows if we even have five years.

https://www.barrons.com/articles/housing-market-fed-frankenstein-51643401022