Is Bernanke’s Fed Helping Home Buyers?

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Most news stories take this for granted. They shouldn’t.

Let’s take the Bloomberg news story below. It states as a fact that the Fed’s insistence on creating more and more new money without a “taper” is helping to keep mortgage rates low and thus helping homebuyers. What this leaves out is that low mortgages also boost the price of the house. This is particularly hard on first time homebuyers who have no existing house to sell. The Bloomberg story focuses on an owner who has a home and wants a bigger one. In that case, at least the house being sold is artificially inflated as well as the house being bought.

Who are first time homebuyers? Typically they are young or poor or people entering the middle class. Who are helped most by inflated house prices? They may be older people who are moving to rentals or downsizing. Yet older people are already disproportionately rich compared to other age brackets.

And what happens to every homeowner when the artificial supports collapse, as they did in 2008?

Finally, when the Fed targets and tries to support a particular economic sector, it leaves monetary policy and enters the realm of fiscal policy. A close reading of the Fed statute makes it clear that the Fed is not legally authorized to engage in fiscal policy. That is for Congress and Congress alone. In this and many other ways, the Fed is not acting legally.

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