 Welcome to Minor Issues, a podcast commentary on the economy. Hi, I'm Mark Thornton at the Mises Institute. Before we begin, it is worth noting that the subject of last week's podcast was also the topic of the lead article on the Heard on the Street page of the Wall Street Journal. Justin LaHart also warned that expectations of much lower interest rates could be wrong because everything could be too good in the economy, the Goldilocks syndrome, and the Fed would not have to cut rates at all. Yahoo Finance also covered the issue positively and argued that the Fed might cut rates more than the market expects because things were so good. We did not argue with market expectations but rather attributed it to caution that the Fed would have to cut rates due to crises based on the same facts and expectations. Our topic this week is the housing market. Why are new houses selling but not pre-existing houses? Normally the housing market is where people buy and sell their homes, both brand new and existing or previously owned homes. Normally both types of houses are fused together in the same market by the price system. If you want a brand new house in a hip location with all the latest features, you pay a very high price. If you want a fixer upper in a sketchy neighborhood that needs a lot of work and upgrades to current standards, you pay a relatively low price. And in the middle are most of potential buyers and sellers looking for the best overall deal. But we don't live in a free market. We live in a highly regulated market of a seemingly infinite number of bureaucrats and rules where the Fed, the Federal Reserve, sits behind the curtain pulling most of the important strings. The minor issue elephant in the home market this week is really the Fed's zero interest rate policy, which for more than a decade kept the rate at charges banks near zero. That kept mortgage rates and other rates historically low. In addition, the Fed's quantitative easing policy saw them purchase a portfolio, not just of trillions of dollars of government bonds, but almost three trillion dollars worth of mortgages or one third of that entire market. This flood of credit started during the last crisis, the original housing bubble and financial crisis. From 2012 to 2020, mortgage rates hovered around 4%, which is really a joke and a bad one at that. Then in 2020, to rescue us from the flu, they spent another $10 trillion on a bailout of the economy and mortgages dropped to near 3%. Now they are 6.5% for a 30-year mortgage. This is the cause of the current problem in the housing market, the policy of the Federal Reserve. People who already have houses and want to move are not selling because they want to keep their low rate low payment mortgage. Hence the supply of houses for sale is greatly constrained or restrained. This keeps prices up and makes buying a home more unaffordable. Housing prices are now much higher than even during the peak of the housing bubble and they have fallen only a little and are still 30% higher than the previous peak. So housing is frustrating and problematic for buyers, even sellers, and everyone working in the industry. And it all goes back to the Fed, supposedly rescuing us from previous bubbles that they caused. The subtle difference between brand new houses and previously owned ones explains why new housing is relatively robust while existing housing is in a holding pattern. New houses don't have current owners with mortgages who are reluctant to sell. They have motivated builders who are nervous about market conditions. Builders have a natural flexibility in comparison to homeowners. Builders can offer discount financing, help with down payments, upgrades, and other non-price concessions that reduce prices when buyers are available and eager to buy. Existing homeowners have a more fixed calculus of how much they can concede before losing their existing mortgage and payment, and this stymies the decision to sell and move. The resulting restricted supply keeps prices up and prevents the realization of the bubble popping. This all makes the economic problem of getting people into the proper homes much worse. It also creates a new problem, and not just for families, but also for workers who can't move to better jobs or away from draconian state and local governments. I have read many articles on the current housing situation, and not one of them mentioned the Fed's zero interest rate policy or its very long quantitative easing policy which resulted in the Fed almost taking over the mortgage market, and that is the minor issue for this week.