Federal Home Loan Bank is Draining Off Liquidity
Güncellendi
The chart below is comparison between Schiller Housing Index (barchart) vs Federal Home Loan Bank (FHLB) balance sheet (linechart). In case you don't know what is FHLB - it's a second to last resort of lender that provides liquidity to US home loan after the FED. Quite recently FHLB is reducing their balance sheet from 1T to around 800B to take out liqudity from housing system. If these trends continue it will make it difficults for the bank to provide mortgage to the homeowners, which in turns will bring a cooling measure to housing price.
In 2008 when the US housing crash happen, FHLB increase their balance sheet to provide support for housing market from crashing too fast. Which cause the housing market to cool down substantially. However, in 2020 during pandemic, FHLB is reducing their balance sheet in line with the reduction of housing supply, so the housing price remains goes up until 2023. However, in the end of 2023 FHLB starts to reduce their balance sheet to break-stop the housing price from overshooting. Which they quickly realized it's a big mistake because it triggers several banking collapse such as SVB, First Republic, Signature Bank, etc.
So they reverse it to quantitative easing called BTFP (Bank Term Funding Program) to provide 1 years liquidity to prevent contagions of local banking collapsed until mid of 2024. Which at the same time there will be increase supply of housing in the next couple years that will definitely cool down or even bring down the housing price from mid 2024 onward. So I believe housing price will start to continue downward direction from mid 2024 until probably 2027 at least when the corporate debt wall are deteriorating causing several mass layoffs in the next couple of years.
In 2008 when the US housing crash happen, FHLB increase their balance sheet to provide support for housing market from crashing too fast. Which cause the housing market to cool down substantially. However, in 2020 during pandemic, FHLB is reducing their balance sheet in line with the reduction of housing supply, so the housing price remains goes up until 2023. However, in the end of 2023 FHLB starts to reduce their balance sheet to break-stop the housing price from overshooting. Which they quickly realized it's a big mistake because it triggers several banking collapse such as SVB, First Republic, Signature Bank, etc.
So they reverse it to quantitative easing called BTFP (Bank Term Funding Program) to provide 1 years liquidity to prevent contagions of local banking collapsed until mid of 2024. Which at the same time there will be increase supply of housing in the next couple years that will definitely cool down or even bring down the housing price from mid 2024 onward. So I believe housing price will start to continue downward direction from mid 2024 until probably 2027 at least when the corporate debt wall are deteriorating causing several mass layoffs in the next couple of years.
Not
During pandemic 2020 the supply of housing are dropping because of construction works were stopped nationwide and demand for housing jumps significantly. So draining off liquidity during this period doesn't give much impact on housing price to cool off. Instead of cooling the housing price, the liquidity crunch caused unintended effect on collapsing several local banks. So in 2023 they have to reverse it back with BTFP program to provide short term liquidity until mid of 2024. However next year liquidity drainage will be followed by supply increase and demand reduction which will certainly bring down housing price.
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