Boston's Housing Bubble: The Fed Is The Culprit
The Boston Fed wrote this propaganda piece about Somerville MA housing prices, perhaps setting the table for who knows what - a bailout for would-be homeowners?
In the article the Fed pretends to ponder “what may have caused housing prices to explode since 2020?”
The Fed need not look far to answer that question. The Fed caused housing prices to explode when it took Fed Funds to zero percent in 2020 and proceeded to purchase $30 billion of mortgage securities each month from Q1 2020-May 2022. There is no great mystery about what caused housing prices to explode. The Fed is the bad actor.
What may curb the Fed’s dovish policy? A spiking 10-year Treasury yield - currently at 4.53% - offers our best hope to curb not only the Fed’s dovish monetary policy, but to reel in Federal spending. The Federal Government has spent $1.3 Trillion for the first two months of fiscal 2025 and has run a $624 Billion deficit over that two month period. Not that deficits are OK, but the U.S. used to run $600 billion deficits for an entire fiscal year before the COVID madness of 2020. Now it is bleeding that amount in 8 weeks. Should long yields remain elevated, it will be difficult for Treasury to issue debt at those maturities, which means the Federal Government will increasingly be funded with short-term debt, which means the risk of the Treasury market blowing up will increase as more credit risk is concentrated into short-term maturities.