Jerome Powell Wants Housing Prices To Fall
(RightWing.org) – In the spring of 2021, inflation emerged as a new threat to the US economy. Still, President Joe Biden and Federal Reserve Chairman Jerome Powell tried to assure the country it was only temporary and transitory. Eighteen months later, Powell is using the power of the Fed to raise interest rates to cool the economy and combat inflation.
On Wednesday, September 21, the Federal Reserve met and raised interest rates by 75 basis points; for the fifth time this year. The rate now sits between 3% and 3.25%, the highest since 2008. The result is credit card usage, personal loans, vehicle financing, and housing will be more expensive for borrowers. After the central bank concluded its monthly meeting, Powell addressed home costs and stated he hoped prices would fall soon.
Powell Wants Home Prices to Fall
Since the pandemic hit in 2020, Americans went on a home-buying spending splurge. In his press conference, Powell said over the last several years, prices have risen to unsustainable levels. Buyers exceeded the number of homes for sale, and the selling prices shot through the roof, making home affordability impossible for many Americans. The Fed chairman said that at some point, the housing market would likely experience a reset.
The Fed Chair said supply and demand must become balanced so increases will rise at reasonable levels and at an appropriate pace with a goal of making homes affordable again. He stated before that could happen, the market would need to undergo a correction.
The central bank has indicated it will continue to raise interest rates into the foreseeable future. It appears its efforts are already starting to pay off as housing inventories move slower and rents rise.
Housing Sales Slow and Rent Prices Increase
Cheap money made homes affordable over the last decade or longer. As the Federal Reserve raises rates, it appears it’s already impacting home prices as the inventory started to slow. On Wednesday, September 21, the National Association of Realtors (NAR) reported that sales of existing homes declined in August by 0.4% — that’s the seventh straight month of decrease. The report noted year-over-year, sales fell by 19.9%.
NAR Chief Economist Lawrence Yun said housing is the most sensitive sector to interest rate policies. He said the mortgage industry felt the impact almost immediately and added the decline in sales reflected increased mortgage rates. Still, prices are higher than a year ago as inventory remains tight.
In addition to addressing home prices, Powell noted rents would likely remain high for a while as demand for rental units rises. That could cause inflation numbers to remain stubbornly elevated.
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