Inflation or Lower Housing Values: Pick Your Cleanest Dirty Shirt?

During the height of the pandemic, the nation’s central bank, the Federal Reserve (aka The Fed), started a new round of bond purchases that swelled its portfolio of mortgage-backed securities to $2.7 trillion from $1.4 trillion it held in February 2020.

That created ultra-low mortgage rates which heavily stimulated home buying and refinancing activity in America. 

To combat inflation, the Fed is now planning to let its holdings shrink as securities get paid off, writes Neil Irwin in his recent Axios post called “The Fed's $2.7 trillion mortgage problem.” The problem is that “[e]xtracting itself from this market risks crashing the housing industry and creating intense political blowback for incurring financial losses.”

Irwin writes that the Fed’s pandemic actions to loosen up capital unseized a market and fueled a housing boom, but the opposite reaction could lose U.S. taxpayers billions and be bad for housing. 

Since housing is 15% of the U.S. economy, these decisions will have major implications. 

Upzoned Host Abby Kinney asks her podcast guests, Strong Towns President Charles Marohn and Andrew Ganahl, an infill developer in Kansas City who used to work for the U.S. Treasury, to put it into perspective on this edition of the podcast.

Additional Show Notes

• “The Fed's $2.7 trillion mortgage problem,” by Neil Irwin, Axios (May 2022).

• Abby Kinney (Twitter)

• Charles Marohn (Twitter)

• Theme Music by Kemet the Phantom.