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Availability of cheap money is driving the housing bubble

Investor Peter Boockvar is sounding the alarm on a housing price bubble brought on by the Federal Reserve’s Covid pandemic policies.

He warns first-time homebuyers are most vulnerable to dramatic losses.

“I feel bad for the people who bought homes over the past year because they’re the ones that paid the very elevated prices,” the chief investment officer at Bleakley Advisory Group told CNBC’s “Trading Nation” on Thursday.

He singles out those who put down 5% amid historically low mortgage rates. If home prices correct by 10%, Boockvar sees a world of pain.

Their equity is basically wiped out’

“Their equity is basically wiped out,” he said. “For those who have owned for a while that have built up equity, they will be much more insulated.”

His warning comes as Fed policymakers convene virtually for the annual Jackson Hole symposium.

Boockvar, who went on inflation watch in Availability of cheap money is driving the housing bubblemid-2020, has been critical of Fed policy through the pandemic. By maintaining unprecedented quantitative easing measures through the economic recovery, he notes the central bank created a spike in housing demand that has been overwhelming supply. The result is skyrocketing prices.

“The problem is it stimulated so much demand that the supply side couldn’t keep up — whether it was builders who couldn’t get materials or couldn’t find labor or couldn’t find enough lots,” said Boockvar, a CNBC contributor.

Since housing is the most interest rate-sensitive part of the U.S. economy, Boockvar is concerned the repercussions will be far-reaching.

“It’s very hurtful for the buyer — particularly the first-time buyer who wants to own a home who is now getting priced out and then in turn is renting,” said Boockvar. “But renting prices are going up dramatically, as well.”

He suggests there’s evidence the air is leaking out of the bubble.

“People are now seeing sticker shock in home prices and they’re backing off,” added Boockvar. “Buyers are calling a time out. They said ‘I can’t afford this’ or ‘I want to wait to see home prices cool down.’”

Wall Street may get more clarity on the housing market next week with the pending sales of existing homes, the FHFA house price index and S&P CoreLogic Case-Shiller results. He expects the data, which will reflect trends from earlier this summer, will be strong.

“We’re still going to see these double-digit home price increases,” Boockvar said. “There’s still a dearth of inventory.”

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Mortgage loan rates will continue to stay low, and home and condo prices will continue to rise, as long as financial institutions can sell their mortgage-backed securities to foreign investors.  It’s that simple.

By Ruth Simon, James R Hagerty & James T Areddy, Wall Street Journal

Strong demand for mortgage-backed securities from investors world-wide is allowing American lenders to make more loans — and riskier ones — in a way that is helping prolong the boom in U.S. house prices.

The cash pouring in — not only from U.S. investors but increasingly from Europe and Asia — keeps stoking the housing market even as the Federal Reserve Board continues to raise interest rates, normally something that damps home prices. The market has shown a few signs of slowing recently, and talk of a bubble has grown louder, but prices continue to rise or remain at lofty levels as investors continue to gobble up mortgage-backed securities and banks keep lending.

“As the Fed has tightened, lenders have eased” terms for borrowers, says Mark Zandi, chief economist at Economy.com, a forecasting firm in West Chester, Pa.

Investment banks and other firms have been buying mortgage loans from lenders and packaging them into securities for sale to investors since the 1980s. But investor demand has surged in recent years, largely because in an era of low returns, mortgage-backed securities offer yield-starved investors much higher returns than government bonds.

Complete article: Housing-Bubble Talk Doesn’t Scare Foreigners

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