China could crush the U.S. housing market

cnbc.com

17 points·rntn··4 comments

That sounds like a feature, not a bug.

High real estate prices sound good for people that hold real estate. But in the aggregate, high real estate prices are a net transfer of wealth from the young to the old. We need healthy young families in our society, but we've priced them out of living.

That’s true in the long term.

In the short term, a sudden drop in house prices causes economic pain (e.g. people trapped by negative equity), and the US has a lot of economic pain about to hit it already.

I’m kind of sceptical that the scenario the article presents will play out though. The Fed would reverse course and buy up the bonds, if it came to it.

> At the end of January, foreign countries owned $1.32 trillion worth of U.S. MBS, or 15% of the total outstanding, according to Ginnie Mae. The top owners: Japan, China, Taiwan and Canada.

I'm not sure a fraction of 15% is all that concerning. It especially wouldn't be if there was sufficient liquidity for others to buy up the discounted MBS.

But do mortgage rates follow the price of MBSes? That seems backward. The article says mortgage rates loosely follow the 10y and presumably more closely follow the Fed benchmark.

1. Crushing the MBS market does nothing to existing homeowners. They still make their monthly payment at the same interest rate.

2. Crushing the mortgage market is not the same as crushing the housing market. 1/3 of sales are cash, and mortgage rates don't address the supply imbalance.

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