A quick look at the Fed Res balance sheet shows a $15 billion sell off for the week in mortgage-backed securities. Combined with forthcoming promised Fed Funds Rate rate hikes, the effect will be to crush residential realty.
Should Fed Res central bankers (FRCBs) liquidate fully their position, it will take them about three and half years to exit the mortgage-backed securities market. Thus, one should expect at least four years but more likely six to ten years before normal-functioning mortgage markets and house-building resume.
As well, one should expect the stocks of house builders (wrongly called "home" builders) and building supplies retailers to go down for years to come.
Obscene Stock Prices
When you look at the curves below, what you should see are obscene spikes in stock prices since 2011 when FRCBs floored the accelerator pedal on quantitative-easing with hyper-inflationary buying of US Treasury notes and mortgaged-backed securities.
Even during the Greenspan Great Inflation of 1994-2000, at least prices rose in accordance to authentic economic activity. Yet, by comparison those price rises were modest compared to the 2011-2022 Quantitative Easing Deception.
Builder stocks have been juiced twice by FRCBs and Congress, first during the No-Doc loans engineered residential realty bubble between 2001 and 2005 and then from the Great Quantitative Easing Bubble of 2009 to 2022.
Pulte (PHM)
Toll Brothers (TOL)
KB Home (KBH)
House Supplies Retailers
House materials and suppliers likely are no more than $20 to $25 stocks that are overpriced by 1200 per cent!
Home Depot (HD)
Lowes (LOW)
Good Guess of What These Stocks Will Go
Should FRCBs do the right thing and close their positions on mortgage-backed securities as well as US Treasuries, here is where the stock prices of these stocks might head.
The prices come from the lows of 2000 or 2009, normalized in True Dollars and then re-inflated to current dollars, i.e., negotiable bank credits in demand deposits or dollars in circulation.
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