How hot is the housing market? There is certainly no shortage of indicators, but three in particular were published in the last week: the S&P/Case-Shiller Home Price Index, the All-Transactions House Price Index from the U.S. Federal Housing Finance Agency and the MSA-level “hotness” scores from Realtor.com.
The indices suggest high prices that are inching higher, while the hotness scores suggest northern MSAs are gaining ground over their southern counterparts.
Turning first to the price indices, the FHFA All-Transactions index is a weighted, repeat-sales index of single-family properties with mortgages purchased or securitized by Fannie Mae or Freddie Mac since 1975. In the index, the base year with an index value of 100 is the first quarter of 1980.
This quarterly index reached 645.18 in the second quarter of 2023, an all-time high, according to the latest data published Aug. 29. That is up 3.1% from the first quarter and up 4.5% from the year prior.
The S&P/Case-Shiller index also uses a repeat sales method, but is calculated monthly, seasonally adjusted and indexed to a base of January 2000.
Its all-time high came in June 2022 at 304.82, but this June – the most recent data – is right on its heels at 304.64. That is up only 0.7% from May and essentially flat to the year prior (because the Case-Shiller index lags, home sales that went into contract in April are present in the data).
The closest FHFA equivalent to the S&P/Case-Shiller index is its Purchase-Only House Price Index, which is likewise calculated monthly and seasonally adjusted. At 405.81, June constituted the index’s all-time high. It is up only 0.3% from May and up 3.1% year-to-year.
While these indices are climbing as of June, it should be noted that home prices have faced headwinds in the months since. Buyers are losing purchasing power to rising mortgage rates, mortgage demand has dipped and homebuilder confidence has declined, to name a few.
Turning to the Realtor.com hotness scores, this measure attempts to calculate each MSA’s standing compared to the nation’s other MSAs based on listings’ median days on market and average listing views on Realtor.com. It is a more timely view of these markets, with August as the most recent available data.
The hottest metros in Realtor.com’s rankings are located mostly in the North and the Midwest, while the lowest-ranking metros are mostly found in Louisiana, Texas and Florida.
The year-over-year change in each MSA’s market hotness score further shows a new preference for northern locales over southern ones. Several southern cities’ scores fell, while MSAs in the Midwest and Northeast, as well as California, saw noteworthy gains.
Like many tech workers, Jing Guo and Gabriel Taylor Russ left Chicago during the COVID-19 pandemic in search of warmer weather.
“We were working remotely,” Guo says of their move to the Bay Area. “We thought ‘at least we can be outside.’”
However, a few months after settling in, the couple realized how difficult it would be to buy a home in San Rafael, where housing inventory is low and the median home price is around $1.4 million. “It was just too expensive,” says Russ, 37, a director of engineering for Ritual Wellness.
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It’s not like they were being picky, either. They didn’t want a modern house or something that was move-in ready. They simply wanted to find a house with character that they could make their own.
“Our dream was to own our own home and design it our way,” says Guo, 33, who works as a product designer for Two Chairs, a mental health company.
As self-proclaimed nomads — Russ is originally from Australia and Guo immigrated to Chicago from China when she was 12 — they decided to look in Los Angeles, where they could continue to enjoy the outdoors.
But they quickly learned that Los Angeles is no different from the Bay Area: When they bid on a home in South Pasadena, theirs was one of 63 offers.
“We were outbid by $200,000,” Russ says of the bidding war, shaking his head. “And we bid over the asking price just like everyone else.”
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So when their real estate agent sent them a listing for a bungalow in Eagle Rock that needed work, the couple fell in love with the 1923 home’s Spanish architecture.
The quiet tree-lined street near Occidental College contributed to the bungalow’s charm. Although the listing described the house as needing “a little polishing” — a euphemism for remodeling — the couple saw great possibility. “I told our realtor while FaceTiming, ‘This is it!’” said Guo. “When you know, you know.”
The Eagle Rock house met the couple’s requirements: It had character, needed to be updated and had the potential for an accessory dwelling unit, or ADU, to add value to the property.
The ADU was designed to complement the main house’s Spanish architecture. Right, the one-car garage before it was turned into an ADU. (Mariah Tauger / Los Angeles Times; Precision Property Measurements)
This time, their offer of $1,025,000 was accepted after only three others bid on the house.
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When they saw the house in person, however, they realized how much work would be required before they could move in.
“We had to hire someone to rip out the urine-soaked flooring from the previous tenants’ cats,” Guo says, wrinkling her nose as she recalled the aroma. “But the only way we could afford to renovate the house was to live in it first.”
With temporary flooring in place, the couple moved in and learned there was no working heat. The kitchen range wasn’t functional. Cooking on a hot plate with renovations on the horizon, Guo says they felt like they were camping in the house.
After living in the house for a year, they hired architect Barrett Cooke of Arterberry Cooke to help them rethink the bungalow and turn the one-car garage into a tenant-friendly ADU on a budget of $230,000.
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“The house needed some love,” Cooke said diplomatically, “but we worked with the existing details and tried to enhance what was already there.”
Cooke added an arch in the ADU in keeping with the main home’s Spanish architecture. Right, the custom-made front door of the main home.(Mariah Tauger / Los Angeles Times)
Although living in the house before renovating it could have been better, it ultimately helped the couple rethink the interiors. “We realized the living room was too small and the lighting was bad,” Guo says.
When it came time to renovate the 1,258-square-foot house, the couple says Barrett and contractor Antonio Blanc stayed true to the footprint — with one exception.
“We added 100 square feet to the front of the house and raised the roof in the living room,” Cooke says. “That completely transformed the function of the house.”
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Cooke also removed the wall between the kitchen and dining room to create an open living area and added skylights in the hallway, brightening the dark interiors.
A set of black aluminum-clad French doors off the dining room let in further sunshine and provide easy access to a new front porch.
“We wanted to orient the house so that their yard space was the front yard,” Cooke says. The porch maximizes the views toward the street and the front yard’s park-like setting. “People often want to connect the kitchen to the backyard,” Cooke explains, “but that wasn’t an option with a small yard and ADU in back.”
In a move that transformed the front of the house and added curb appeal, Cooke relocated the front door from the middle to the side, just off of the porch. She also installed arched doorways and windows that emphasize the home’s Spanish architecture.
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In the open living area, European French oak engineered hardwood floors contribute to the home’s clean look. A vestibule with a bench and coat rack at the entrance to the living room adds order and feels like a private space.
The bathroom in the ADU features simple subway tile.(Mariah Tauger / Los Angeles Times)
“I’m naturally anxious,” Guo says, appreciating the home’s soothing interiors. “I need a house where I can feel calm.”
When it came to transforming the one-car garage, Cooke designed the 480-square-foot ADU to correspond to the architecture of the main house with a similar roofline, red tile awnings and black aluminum-clad windows.
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“It’s very clean and simple,” Cooke says. “The two structures play off each other quite nicely.”
Like the main house, Cooke raised the ceiling of the original garage to bring in more light.
Steps from a charming entry where guests can store their shoes, coats and laptops, the main living area has a living room and full kitchen with simple white subway tile and custom mint green cabinets.
The bedroom has enough room for a desk and plenty of storage courtesy of side-by-side closets. To accommodate long-term tenants, Cooke installed a washer and dryer in the pass-through bathroom, which connects the bedroom to the living area and kitchen.
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The couple rents the ADU as a furnished midterm rental, which generally lasts three to nine months, for approximately $4,000 monthly. “We were always banking on the ADU for its earning potential,” Russ says.
Now that the finishing touches are complete, the couple loves the results: a character home that has been beautifully remodeled to honor its Spanish heritage and an ADU that covers their construction loan.
Over the last few years, the couple went from living in a construction zone in a new city with few friends to hosting Dungeons & Dragons game nights in their elegant, sun-filled dining room.
On a sunny day earlier this month, they took a break from their Zoom meetings and sat outside on their new patio.
As neighbors walked by and said hello, the couple discussed future home improvements, including landscaping, in the shade of a majestic Chinese elm in the front yard.
“I’m so excited to hang out here,” Guo says. “I still can’t believe we live here.”
Just about everyone knows home prices have been on the mend for a while now, though in the grand scheme of things, not very long.
Still, in just over a year or so, prices have chalked double-digit gains, which is great for existing homeowners, especially those formerly in underwater positions.
Unfortunately, the rapid ascent of home prices has to have a cost, and that’s a lack of affordability, or at least reduced affordability, for new home buyers.
I myself began worrying about another bubble back in February, seeing that inventory was highly constrained and bidding wars were thrusting prices to inconceivable heights.
But as the months wore on, I realized it was just the beginning. Home prices were just starting to recover, despite not being all that far from prior bubble highs in some markets.
Now summer is coming to a close and there doesn’t seem to be any end in sight. I thought things were cooling off, but people keep buying at seemingly any price. Listing prices continue to march higher in the hot markets nationwide, and now some areas are even registering new all-time highs.
Again, great for existing homeowners looking to gain enough equity to sell, or for those who purchased a year ago when home prices seemingly bottomed.
But now comes the question of sustainability going forward. If these rapid price increases prove to be too much to bear, home prices could reverse course again.
Of course, that may not happen for years, which is the good news about what could be the beginning of a bubble.
[S&P/Case-Shiller Creator Says Phoenix and Las Vegas ‘Clearly in Bubbles’]
Affordability Below Its Long-Term Trend Line
John Carney over at CNBC is the one who uttered the “B-word,” using the National Association of Realtor’s monthly affordability index as evidence.
The index takes average mortgage rates and median home prices, and assumes a home buyer will put down 20% and keep their front-end DTI ratio at 25%.
When the index is at 100, it means households earning the median income can afford a median home price at an average mortgage rate.
But a reading of 100 isn’t good, not even close. In fact, the last time it was near 100 was in 2006, when it dipped to 101. And we all know what happened next.
This is the great flaw of relying on a real estate agent’s interpretation of affordability…things will pretty much always be affordable.
Anyway, that’s why you have to look at the long-term trend line, not whether the reading is above 100 or not.
That’s what a group of Robert Morris University researchers did – they believe a housing bubble exists when the index value falls below its trend for at least three consecutive months.
During the beginning of the year, the reading was above 200, thanks to ultra-low mortgage rates and home prices that were still unsure of their direction.
But the index has dropped steadily as both rates and prices have risen, and beginning in April of this year, the index fell below its trend line.
The reading has remained below trend ever since, so by the researchers’ measure, we are in a housing bubble.
Bubbles Take a While to Pop
Here’s the good news. Despite apparently being in a housing bubble, it generally seems to take a while for the bubble to inflate and eventually pop.
So just because we’ve started a new bubble doesn’t mean housing is dead.
The Robert Morris economists said affordability fell below trend in early 2004 and it wasn’t until mid-2006 that home prices peaked and began to nosedive.
And seeing that there are more safeguards in place this time around, it could take even longer for the bubble to generate to full size and burst.
At the moment, most homeowners are opting for long-term fixed mortgages, and other than the FHA, most borrowers are required to put a fair bit of money down.
There also aren’t many high-risk loan programs available in the market, unless you consider ARMs, which could balloon higher by the time their first adjustment period comes along.
Perhaps this latest bubble, assuming it exists, has been driven by low mortgage rates, whereas the previous one was fueled by easy credit, including subprime mortgages.
New Hampshire is home to a wide range of scenic landscapes like the White Mountains and the Lakes Region with roughly 270 bodies of water, quaint beach villages, and charming historic towns. Striking a balance between city life and outdoor recreation, New Hampshire is an inviting place to call home.
If you’re currently living in or are considering moving to the “Granite State,” then chances are you have a budget you’d like to stay under when it comes to renting or buying a home. When it comes to buying a home in New Hampshire the median home sale price is $466,700.
Don’t worry if that number doesn’t fit in your budget – we’ve got options to help you find a home or apartment that does. Redfin has rounded up a list of the 5 of the most affordable places to live in New Hampshire – and they all have a median home sale price under the state’s average. From Claremont to Concord, find out which cities made the list.
#1: Claremont
Median home price: $217,000 Average sale price per square foot: $152 Median household income: $46,848 Nearest major metro: Concord (50 miles) Claremont, NH homes for sale Claremont, NH apartments for rent
With a median home sale price of $217,000, Claremont claims the first spot on our list of affordable places to live in New Hampshire. About 12,900 people live in this city and is roughly 50 miles from the nearest major metropolitan city, Concord. Living in Claremont, you can explore nature areas like the Arrowhead Recreation Area, Moody Park, and the Sugar River Trail, stroll through the downtown area, or take a drive into Vermont.
#2: Keene
Median home price: $298,000 Average sale price per square foot: $188 Average rent for a 1-bedroom apartment: $950 Median household income: $57,393 Nearest major metro: Concord (50 miles) Keene, NH homes for sale Keene, NH apartments for rent
Coming in as the second best affordable city to live in New Hampshire is Keene. When living in this city of 23,000 people, you can visit one of the beautiful nature areas and forests like Horatio Colony Nature Preserve, Greater Goose Pond Forest, and Otter Brook Lake. There’s plenty to do in town such as watching a show at The Colonial Theatre and exploring the downtown area.
#3: Hooksett
Median home price: $350,000 Average sale price per square foot: $233 Average rent for a 1-bedroom apartment: $2,274 Median household income: $74,497 Nearest major metro: Manchester (5 miles) Hooksett, NH homes for sale Hooksett, NH apartments for rent
About 14,900 people reside in Hooksett, about 5 miles north of Manchester. The median home sale price is $350,000 which is about $115K less than the median home sale price in New Hampshire. Make sure to explore Bear Brook State Park where you can hike and check out the museums, and take in the views of the Merrimack River if you move to the third most affordable city.
#4: Rochester
Median home price: $364,000 Average sale price per square foot: $238 Average rent for a 1-bedroom apartment: $1,115 Median household income: $57,393 Nearest major metro: Portsmouth (20 miles) Rochester, NH homes for sale Rochester, NH apartments for rent
Only slightly more expensive than Hooksett is none other than Rochester. With roughly 32,500 residents in Rochester, make sure to spend time outdoors such as camping by Baxter Lake at Grand View Campground and hiking the Pickering Ponds Trail. You can also check out the restaurants downtown and watch a show at the Rochester Opera House.
#5: Concord
Median home price: $385,000 Average sale price per square foot: $243 Average rent for a 1-bedroom apartment: $1,320 Median household income: $57,393 Concord, NH homes for sale Concord, NH apartments for rent
Another great area to add to your list is Concord. With 43,900 people living in this affordable town, Concord is a great option to consider when looking to stay in New Hampshire without paying the premium for a home in a larger city. Living in Concord, you can stop by the New Hampshire State House dating back to 1819, visit Penacook Lake, explore the McAuliffe-Shepard Discovery Center, and watch a concert or Broadway revival at Capitol Center for the Arts.
Methodology: All cities must have over 10,000 residents per the US Census and have a median home sale price under the average median home sale price in New Hampshire. Median home sale price and median sale price per square foot from the Redfin Data Center during August 2023. Average rental data from Rent.com August 2023. Population and median household income data sourced from the United States Census Bureau.
Federal Reserve Governor Christopher Waller said policymakers can afford to “proceed carefully” with interest-rate increases given recent data showing inflation continuing to ease.
“There is nothing that is saying we need to do anything imminent anytime soon,” Waller said in an interview on CNBC Tuesday, signaling he supports holding rates steady at the central bank’s next meeting. “We can just sit there and wait for the data.”
Fed officials will gather on Sept. 19-20 and futures markets are pricing in almost no chance of a rate hike. U.S. central bankers are trying to judge whether their benchmark lending rate, which they raised to a range of 5.25% to 5.5% in July, is restrictive enough to slow demand and return inflation to their 2% target. Excluding food and energy, prices rose 4.2% for the year through July.
Economic signals remain mixed. Demand for labor is gradually slowing. Non-farm payrolls gains have slowed to an average of 150,000 a month over the last three months, compared with 287,000 a month in the first five months of the year.
“The data last week clearly showed the job market is starting to soften,” Waller said. “If we can keep inflation coming down for the next few months, on trend at like two tenths a month, we are in pretty good condition.”
Waller has been an articulate voice for the policy committee’s hawkish tilt until inflation is on a clear downward trend. Waller said July 13 that he saw a need for two more quarter-point hikes this year “as necessary to keep inflation moving toward our target.”
He voted for the increase at the July 25-26 policy meeting.
Waller on Tuesday declined to say whether he would support another increase this year, saying that will depend on incoming data.
The Fed governor said he needed the data to show “a couple of months continuing along this trajectory before I say we’re done” raising interest rates.
Cleveland Fed President Loretta Mester, who has also called for tighter policy to curb price pressures, said the Fed may need to raise rates “a bit higher.”
“I can well imagine, from what I see so far, that we might have to go a bit higher, that we might have to raise the policy rate a bit more,” Mester said in an interview with German newspaper Börsen-Zeitung published Tuesday. “But there is still a lot of time before our next decision in September and we will get a lot of data and information by then.”
Overall growth remains buoyant, with estimates compiled by Bloomberg showing a median forecast for 2% annual rate of economic growth in the third quarter.
Colorado Springs-area home sales fell again last month and prices remained flat as the local housing market continued to feel the effects of spiking mortgage rates.
According to a new Pikes Peak Association of Realtors market trends report that examined home sales last month that took place mostly in the Springs and surrounding El Paso County:
• Single-family home sales totaled 1,067 in August, a nearly 22% decline from the same month last year and the 15th consecutive month that local sales have fallen on a year-over-year basis.
• Homes spent an average of 29 days on the market in August before they sold, an increase from 17 days during the same month last year.
• The median price, or midpoint, of homes that sold in August was $480,000, a 0.1% drop from $480,592 in August 2022. Home prices had increased each month from December 2014 to November 2022, but began to slide late last year and now have declined on a year-over-year basis in eight out of the last nine months.
• The supply of homes listed for sale totaled 2,420 in August, down 8.3% from the same month last year. On the one hand, August’s listings were the most for any month since November, yet they remained far below pre-Great Recession years, when August inventories often topped 3,000 and 4,000.
The Springs-area housing market, like that of many other cities, has done an about-face since the second half of last year because of higher long-term mortgage rates.
For years, historically low rates in the neighborhood of 3% for a 30-year, fixed-rate loan helped spur a furious demand for single-family homes. That demand, coupled with a shortage of properties for sale, sent Springs-area median home prices soaring over several years; in June 2022, they hit a record high of $495,000.
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After the Federal Reserve began to hike interest rates last year to tamp down surging inflation, mortgage rates rose, too, and roughly doubled to more than 6% for 30-year loans by the end of last year.
That trend of high rates continued through the first several months of this year. In mid-August, long-term mortgages topped 7%; last week, the national average for a 30-year, fixed rate mortgage was 7.18%, according to mortgage buyer Freddie Mac.
Higher rates have priced many homebuyers out of the market and sent sales plunging.
Local real estate agents, however, have said that the demand for homes remains relatively strong. As a result, and combined with tight inventories, prices haven’t plunged, though they are down from their record highs.
The new home side of the Springs-area housing market also has felt the effects of higher mortgage rates.
In August, 127 permits were issued for the construction of single-family, detached homes, according to a new Pikes Peak Regional Building Department report. August’s tally was up 15.5% compared with the same month last year.
But the pace of home construction through the first eight months of this year remains well behind the same period in 2022, Regional Building Department figures show. Through August of this year, single-family detached permits totaled 1,655, down 36.4% from 2,604 on a year-over-year basis.
Floods, fires and extreme weather are reshaping how people view climate risk and real estate
A clear majority of people in each region of the United States consider at least one climate risk when shopping for a home.
A majority of today’s buyers are millennial and Gen Z shoppers, and they are more likely than other generations to consider a climate risk when deciding where to buy a home.
SEATTLE, Sept. 5, 2023 /PRNewswire/ — More than 4 out of 5 prospective home buyers consider climate risks as they shop, new Zillow research shows. Most say their major concern is flood risk, followed by wildfires, extreme temperatures, hurricanes and drought.
Situated along the Chesapeake Bay, Maryland is well-known for its scenic beauty, colonial heritage, close proximity to Washington, DC, and a mix of big cities, quaint coastal towns, and welcoming suburbs. If you’re currently living in Maryland or are considering moving to the state, then chances are you have a budget you’d like to stay under when it comes to renting or buying a home. As of August, the median home sale price in Maryland is $431,200.
If that number is out of your budget, don’t worry. We’ve got options to help you find a home. Redfin has collected a list of the 5 most affordable places to live in Maryland. And they all have a median home sale price under the state’s average. From Baltimore to Waldorf, learn what cities are in the top 5.
#1: Baltimore
Median home price: $224,900 Average sale price per square foot: $156 Average rent for a 1-bedroom apartment: $1,349 Median household income: $52,164 Baltimore, MD homes for sale Baltimore, MD apartments for rent
With a median home sale price of $224,900, Baltimore lands the number one spot on our list as the most affordable place to live in Maryland. There are about 585,700 residents living in this city. If you’re considering moving to Baltimore make sure to take a guided tour of Fort McHenry, visit the Walters Art Museum, explore the National Aquarium, hike around Patapsco Valley State Park, or take a boat ride around the Inner Harbor.
#2: Dundalk
Median home price: $225,000 Average sale price per square foot: $177 Average rent for a 1-bedroom apartment: $1,087 Median household income: $55,489 Nearest major metro: Baltimore (9 miles) Dundalk, MD homes for sale Dundalk, MD apartments for rent
Taking second place on our list of affordable cities to live in Maryland is Dundalk, just 9 miles east of Baltimore. When living in this city of 67,800 people, you can take in the picturesque views from one of the waterfront parks.
#3: Bel Air South
Median home price: $340,000 Average sale price per square foot: $185 Median household income: $100,824 Nearest major metro: Baltimore (30 miles) Bel Air South, MD homes for sale Bel Air South, MD apartments for rent
Next is the city of Bel Air South, which has about 57,600 residents. The median home sale price is $340,000 which is about $90K less than the median home sale price in Maryland. If you find yourself moving to the third most affordable place, make sure to visit Harford Glen Park or Winters Run Conservation Area, or check out the nearby Liriodendron Mansion.
#4: Glen Burnie
Median home price: $362,500 Average sale price per square foot: $226 Average rent for a 1-bedroom apartment: $1,522 Median household income: $55,489 Nearest major metro: Baltimore (10 miles) Glen Burnie, MD homes for sale Glen Burnie, MD apartments for rent
Only slightly more expensive than Bel Air South is the city of Glen Burnie. With a population close to 72,900, there’s still plenty to do in Glen Burnie such as checking out one of the parks in town or going shopping.
#5: Waldorf
Median home price: $419,500 Average sale price per square foot: $210 Average rent for a 1-bedroom apartment: $1,950 Median household income: $55,489 Nearest major metro: Alexandria, VA (22 miles) Waldorf, MD homes for sale Waldorf, MD apartments for rent
The final area on our list of affordable places to live in Maryland is Waldorf. With 81,400 residents, moving to this affordable city gives you the perks of city-life without living in a major metropolitan area. Living in Waldorf, you can explore the trails in the nearby Cedarville State Forest or grab a meal at a local restaurant.
Methodology: All cities must have over 50,000 residents per the US Census and have a median home sale price under the average median home sale price in Maryland. Median home sale price and median sale price per square foot from the Redfin Data Center during August 2023. Average rental data from Rent.com August 2023. Population and median household income data sourced from the United States Census Bureau.
A key indicator of excess liquidity in the financial system has been falling since May, a development that holds promise for banks but raises questions for financial stability.
The Federal Reserve’s overnight reverse repurchase agreement, or ON RRP, facility has seen usage decline from nearly $2.3 trillion this spring to less than $1.7 trillion through the end of August, its lowest level since the central bank began raising interest rates in March 2022.
For banks, this was a desired outcome of the Fed’s effort to shrink its balance sheet. As the central bank allows assets — namely Treasuries and mortgage-backed securities — to roll off its books, its liabilities must decline commensurately. The more of that liability reduction that comes from ON RRP borrowing, the less has to come out of reserves, which banks use to settle transactions and meet regulatory obligations.
“What we’ve seen is the decline in the Fed holding has mostly come through on the liability side in terms of a decline in reverse repos, rather than reserves,” Derek Tang, co-founder of Monetary Policy Analytics, said. “This is, of course, welcome news to the Fed, because the Fed wants to make sure that there are enough reserve balances in the banking system to operate smoothly. So that’s good news.”
Yet, as participation in the ON RRP — through which nonbank financial firms buy assets from the Fed with an agreement to sell them back to the central bank at a higher price the next day — shrinks, some in and around the financial sector worry that funds are being redirected to riskier activities.
Darin Tuttle, a California-based investment manager and former Goldman Sachs analyst, said the decline in ON RRP usage has coincided with an uptick in stock market activity. His concern is that as firms seek higher returns, they are inflating asset prices through leveraged investments.
“I tracked the drawdown of the reverse repo from April when it started until about the beginning of August. The same time that $600 billion was pumped back into the markets is when markets really took off and exploded,” Tuttle said. “There’s some similarities there in drawing down the reverse repo and liquidity increasing in the markets to take on excessive risk.”
The Fed established the ON RRP facility in September 2014 ahead of its push to normalize monetary policy after the financial crisis of 2007 and 2008. The Fed intended the program to be a temporary tool for conveying monetary policy changes to the nonbank sector by allowing approved counterparties to get a return on unused funds by keeping them at the central bank overnight. The facility sets a floor for interest rates, with the rate it pays representing the first part of the Fed’s target range for its funds rate, which now sits at 5.25% to 5.5%.
For the first few years of its existence, the facility’s use typically ranged from $100 billion to $200 billion on a given night, according to data maintained by the Federal Reserve Bank of New York, which handle’s the Fed’s open market operations. From 2018 to early 2021, the usage was negligible, often totaling a few billion dollars or less.
In March 2021, ON RRP use began to climb steadily. It eclipsed $2 trillion in June 2022 and remained above that level for the next 12 months. Uptake peaked at $2.55 trillion on December 30 of last year, though that was partially the result of firms seeking to balance their year-end books.
While it is difficult to pinpoint why exactly ON RRP use has skyrocketed, most observers attribute it to a combination of factors arising from the government’s response to the COVID-19 pandemic, including the Fed’s asset purchases as well as government stimulus, which depleted another liability item on the Fed’s balance sheet: the Treasury General Account, or TGA.
Regardless of how it grew so large, few expected the ON RRP to ever reach such heights when it was first rolled out. Michael Redmond, an economist with Medley Advisors who previously worked at Federal Reserve Bank of Kansas City and the Treasury Department, said the situation raises questions about whether the Fed’s engagement with the nonbank sector through the facility ultimately does more harm than good.
“The ON RRP, when it was initially envisioned as a facility, was not expected to be this actively used. The Fed definitely has increased its footprint in the financial system, outside of the usual set of counterparties with it,” Redmond said. “The debate is whether that increases financial instability, because obviously it is nice to have the stabilizing force of the Fed’s balance sheet there, but it also potentially leads to counterproductive pressures on private entities that need to essentially compete with the Fed for reserves.”
Fed officials have maintained that the soaring use of the facility should not be a cause for concern. In a June 2021 press conference, as ON RRP borrowing was nearing $1 trillion, Fed Chair Jerome Powell said the facility was “doing what it’s supposed to do, which is to provide a floor under money market rates and keep the federal funds rate well within its — well, within its range.”
Fed Gov. Christopher Waller, in public remarks, has described the swollen ON RRP as a representation of excess liquidity in the financial system, arguing that counterparties place funds in it because they cannot put them to a higher and better use.
“Everyday firms are handing us over $2 trillion in liquidity they don’t need. They give us reserves, we give them securities. They don’t need the cash,” Waller said during an event hosted by the Council on Foreign Relations in January. “It sounds like you should be able to take $2 trillion out and nobody will miss it, because they’re already trying to give it back and get rid of it.”
But not all were quite so confident that the ON RRP would absorb the Fed’s balance sheet reductions. Tang said there have been concerns about bank reserves becoming scarce ever since the Fed began shrinking its balance sheet last fall, but those fears peaked this past spring, after the debt ceiling was lifted and Treasury was able to replenish its depleted general account.
“If the Treasury is increasing its cash holdings, then other parts of the Fed’s balance sheet, other liabilities have to decline and there was a big worry that reserves could start declining very quickly,” Tang said. “The Treasury was going from $100 billion to $700 billion, so if that $600 billion came out of reserves, we could have been in trouble.”
Instead, the bulk of the liabilities have come out of the ON RRP, a result Tang attributes to money market funds moving their resources away from the facility to instead purchase newly issued Treasury bills.
The question now is whether that trend will continue and for how long. While Fed officials say the ON RRP facility can fall all the way to zero without adverse impacts on the financial sector, it is unclear whether it will actually reach that level without intervention from the Fed, such as a lowering of the program’s offering rate or lowering the counterparty cap below $160 billion.
A New York Fed survey of primary dealers in July found that most expected use of the ON RRP to continue falling over the next year. The median estimate was that the facility would close the year at less than $1.6 trillion and continue falling to $1.1 trillion by the end of next year.
Those same respondents also expect reserves to continue dwindling as well, with the median expectation being less than $2.9 trillion by year end and roughly $2.6 trillion by the end of this year. As of Aug. 31, there were just shy of $3.2 trillion reserves at the Fed.
“The Fed’s view is that there are two types of entities with reserves, the banks that have more than enough and they don’t know what to do with, and the ones that are having some problems and need to pay up to attract deposits, which ultimately are reserves,” Redmond said. “When there are fluctuations in reserves, it’s hard to tell how much of that is shedding of excess reserves by banks that are flush with them, and how much is a sign that this is going to be a tougher funding environment for banks.”
Tuttle said a balance-sheet reduction strategy that relies on a shrinking ON RRP is not inherently risky, but he would like to hear more from the Fed about how it sees this playing out in the months ahead.
“We have gotten zero guidance on the drawdown of reverse repo,” he said. “Everything is just happening in the shadows.”
The Federal Trade Commission recently revealed the most reported text message scam: bank impersonations.
Reports of bank impersonations by text in 2022 jumped to 20 times the number reported in 2019. According to the FTC, consumers reported a loss of more than $330 million to text message scams in 2022. And cash that’s lost because of bank fraud or scams isn’t covered by the Federal Deposit Insurance Corp. or National Credit Union Administration.
Banks are a safe place to keep your money, but there are still a few basic but important precautions you can take to ensure you don’t fall for a bank-impersonation text scam. Here’s how to protect your money from text message scams impersonating your financial institution.
Don’t make money moves under pressure
Text message scammers will try to make you feel like action is required immediately — at the risk of losing your money. It may come as an urgent message warning you to call or click on a link because of alleged suspicious activity.
“Any type of pressure tactic is not legitimate — that is not your bank,” says Paul Benda, senior vice president of operational risk and cybersecurity at the American Bankers Association. As with any decision about your finances, avoid taking actions when you feel scared, stressed out or pressured.
Don’t click on any links from an unsolicited message
If you receive a text message you’re not expecting, be wary — especially if it looks like it might be from your bank.
In a recent poll by security experts at Security.org, 66% of respondents said that they had received a suspicious text from someone they didn’t know, and about 20% clicked on links texted from strangers, which is never advisable. “Look at any type of unsolicited communication very cautiously,” says Benda.
Major banks were popular choices for scammers to impersonate in 2022. According to the FTC, the most common scam text messages often claimed to be from large banks, including Bank of America, Wells Fargo, Chase and Citibank.
Don’t call a phone number that’s texted to you
Just as you shouldn’t click on a link texted to you from someone you don’t know, don’t click on or dial a phone number you receive in a text. Instead, find the official phone number for your bank by going to its website or mobile app. Initiate contact with your financial institution at its official phone number to ensure you’re talking to a legitimate representative, and verify whether there actually is an issue.
“Making that phone call can be the difference between getting scammed versus not getting scammed,” says Tremaine Wills, a financial advisor and founder of Mind Over Money, a financial literacy company in Newport News, Virginia.
One particular kind of text scam resulted in a median loss of $3,000 in 2022, according to the FTC: a text from someone impersonating your bank, instructing you to reply with a “Yes” or “No” to confirm or deny a suspicious transaction. Once you replied, the scammer would call you under the guise of helping you. Their ultimate goal was to either fraudulently transfer money out of your account or obtain personal information such as a Social Security number.
What to do if you were unable to avoid a scam
If you should happen to fall for a text scammer impersonating your bank, there are a few critical steps to take.
First, alert your bank to the incident and get its help in making sure no more money leaves your account fraudulently. Next, report the scam to local law enforcement. Those first two actions are key for trying to recover any cash that was wrongfully taken from your account.
Finally, file a complaint with the FTC at ReportFraud.ftc.gov and/or report the instance to the Federal Bureau of Investigation’s Internet Crime Complaint Center. The FTC also recommends that you forward suspicious text messages to 7726, which helps wireless providers identify and intercept similar text messages. You can also report and block suspicious text messages within your messaging app.
Having a good idea of your account activity is a key part of protecting your money from scams.
“Have a regular practice of knowing what’s going on with your account,” says Wills. If you’re not completely sure of what’s happening in your account, then you might be more likely to be alarmed by a text message claiming to be from your bank, she says.
This article was written by NerdWallet and was originally published by The Associated Press.