Housing Market and Finance - Fed - Essay Example

The Fed is actively trying to create a bubble when they talked about tapering back in the month of May 2013. Mortgage rates spiked up and stock prices fell when the news of tapering hit the market. The Fed though is denying such charges. It is very much unlikely that the Fed will begin its tapering anytime in the near future. But if we assume such an event occurs in the near future, it will put an end to the low-interest rates in the mortgage market. The private market will then come back in and come back in strong. There is a huge gap of $85 billion a month and that has to be filled up by someone.

When the news of tapering hit the market back in May 2013, mortgage REITS which made profits by borrowing short-term and lending long-term mortgages, fell endangering the $ 40 billion industry (The Department of Treasury and U.S. Department of Housing and Urban Development, 2011). So if the Fed begins its tapering anytime in the near future, mortgage REITS have to raise their rates or rather will be forced to raise their rates, or else their business will liquidate. The housing market will then take a big hit by the rise in mortgage rates. The May 2013 news had already made home buyers stop paying their mortgages and the homeowners stopped refinancing. The housing market has clearly slowed down since May 2013 and has shown no signs of regaining the past momentum (Wallison and Pinto, 2012).

The US is the only country in the developed world to have such a troubled housing market. It is also probably the only developed country to have a major government role in housing policy. “Affordable housing” and other policies related to housing have turned the healthy US market into financial ruin. Moreover, the factors that caused the financial crisis are still in force and until those and the government’s role in housing are eliminated, it is very difficult for the US housing market to return back to normalcy (Wallison and Pinto, 2012).

Conclusion
Housing finance is largely handled by the private sector in most other countries. So private markets should be the primary source of mortgage credit and they should be the ones to bear the burden for losses. The support that the government provides to the housing market must be reduced. The government should work in tandem with the private sector in structuring the long-term role of the government in the housing finance market while making sure that the private sector plays a central role in providing mortgage credit. The government should take necessary action to ensure that Americans have access to quality housing within their affordability and also provide the necessary support to people having the desire to own a home but who are underserved by the primary market. Read More