And it’s no surprise to us when the Federal Reserve wants to print more money.
That’s all they know how to do. So it was inevitable that they’d launch another round of what they call “Quantitative Easing”, But what we call QEternity. (Despite its fancy name, it’s basically money printing dressed up in six dollar words.)
But we DID NOT expect them to do it like this. And it quickly sent us running to our experts to ask some questions, which we’ll get to in a moment.
Here’s a breakdown of what’s going on…
Quantitatively Easing Our Way into Disaster
On September 12th, the Federal Reserve introduced its third round of Quantitative Easing since the 2008 meltdown – or QE3. This time, the fed will buy $40 billion in mortgage backed securities each month until they say otherwise.
In the past, they always told us how much they’d print in advance. QE1 was set at about $1.6 trillion. QE2, a mere $900 billion.
But this time, they’re promising to print $40 billion per month… to infinity and beyond, more or less.
Officially, they say they’ll continue to print $40 billion per month until the economy recovers… and then for a while longer. So there truly is no end in sight – especially if you don’t see the economy recovering anytime soon.
And don’t be fooled by the (relatively) small $40 billion price tag. If the Fed had put this policy in place at the start of the financial crisis, it would total over $1.9 trillion so far.
How Will This Affect Black Box Investment Secrets?
It’s not just how much money the Fed is promising to print with QE3. It’s what they’re buying with the printed money.
Mortgage-Backed Securities.
They’re promising to buy $40 billion per month of home mortgages, from banks. It’s an obvious attempt to throw another life preserver to big banks and the housing market.
And since part of our real estate strategy is to take advantage of people fleeing their homes for apartments we thought we needed to look into this further.
This is the exact question we asked John:
How does QE3, buying mortgage-backed securities, affect home prices and apartment demand in the future? Or do they see it affecting their strategy at all?
In short, our strategy is going strong and remains unchanged.
John: Mortgage backed securities and more financing could affect apartments long-term as far as a nationwide trend, with more people going back to homes. But we think it’s going to happen slowly.
And we have seen for a long period of time demand that is outpacing supply. So we don’t really see it as a major issue, but nationwide it could be as people start going back to houses.
Simple. As you’ve probably heard, all real estate is local.
And if the demand for shelter is “outpacing supply” in our chosen location, or growing faster than the supply of houses, then demand for apartments is going to stay high. Even if housing starts to pick back up in other parts of the country.
So because we have partnered with the right company, in the right place, at the right time – QE3 is not currently a big factor.
And if it ever becomes a factor, we’ll have plenty of time to change our strategy. That’s one of the untold benefits of the Fed revealing their long-term plans:
John: QE3 is basically the first time the government has ever given us their strategy 3 years ahead of time, as far as where interest rates are going to be, which we think is a huge advantage as far as investing in real estate.
They expect interest rates to stay low at least through 2015. It’s very advantageous for us to know interest rates are going to stay low.
It gives us a buying window and a selling window. It gives you a better chance to be accurate. It gives you an opportunity to buy in at a lower rate to lock in lower interest. And also, it gives you more certainty.
“But What About Inflation From QE3?”
Could more inflation from QE3 hurt our strategy? John had more to say on this…
John: Apartments tend to be a good hedge against inflation. Because typically if the cost-of-living goes up, the cost of housing goes up. And usually wealth will stay in line with inflation. So as a hard-asset, typically your rent will rise at the rate of inflation. So you could say it’s a hedge.
If we hit the black swan and have crazy inflation like we’ve never seen before, all bets may be off. But in normal inflationary times, apartments, and real estate – but apartments particularly – are very good hedges for that scenario.