is around $375,000, so with a conservative estimate, there is an excess demand of $2 trillion dollars ready to be borrowed if we had enough homes to sell.
The current estimated housing shortage stands at around 5.5 to 6 million in-demand homes. There are too many people and not enough homes. Low interest rates have created a diversion, and adequate attention hasn’t been given to just how big the demand for housing is. Unfortunately, there is more at play, and the Fed may not have as much power in the market as it would seem. That would put everything back to normal, right? So, the question becomes: If we are experiencing a housing bubble with prices rising like crazy because of low interest rates, couldn’t the Fed sell all of its mortgage-backed securities? Rates would go back up, prices would stop rising and the money supply would return to $4 trillion. And we all know that the higher the interest rates, the tighter our budgets become. When there is less cash available in the market, it becomes more expensive to borrow and interest rates should go up (interest rates being the price of money). In turn, the money the Fed gets for each sale essentially gets “burned.” Opportunistic investors buy the assets and, thus, have less cash. To reduce the amount of money in circulation, the Fed will need to sell its acquired assets at a discount.
Taking money out of the economy to control prices is a little more complicated. The Fed currently holds $2.5 trillion in mortgage-backed securities and has a steady appetite for buying nearly $120 billion in mortgage and bond securities each month.
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