Fed Chair Powell: "Homebuyers need a bit of a reset"

Here are some interesting comments on housing from Fed Chair Jerome Powell today. This is a quick transcript - sorry for any errors - the video is here and the discussion on housing starts around 1:51:00.

Question from Mark Hamrick with Bankrate:

Wonder what your assessment is about the outlook for the housing market given the years long increase in home prices, and now the sharp rise in mortgage rates.  And all that, of course, given the heightened sensitivity around the housing market given the fact that it was a trigger for the Great Financial crisis over a decade ago?

Powell: (emphasis added)

Rates were very low.   A good place to start is rates were very very low for quite a while because of the pandemic and you know the need to do everything we could to support the economy when unemployment was 14% and the true unemployment rate was well higher than that.  So …

And that … that was a, uh, rates were low and now they are coming back up to more normal or above levels.  So … in the meantime, while rates were low and while demand was really high … obviously demand for housing changed from wanting to live in urban areas to some extent to living in single family homes in the suburbs.  Famously. And so, the demand was just suddenly much higher.

So we saw prices moving up very very strongly for the last couple of years.

So that changes now.   And rates have moved up.  We are well aware that mortgage rates have moved up a lot.   And you are seeing a changing housing market.  We are watching it to see what will happen.

How much will it really effect residential investment?  Not really sure.

How much will it affect housing prices?  Not really sure.  Obviously, we are watching that quite carefully.  You’d think over time … There is a tremendous amount of supply in the housing market of unfinished homes … and as those come online …

Whereas the supply of finished homes, inventory of finished homes for sale is incredibly low.  Historically low.  So it’s a very tight market. So prices might keep going up for a while, even in a world were rates are up.  So it’s a complicated situation and we watch it very carefully.

I'd say if you are homebuyer, somebody or a young person looking to buy a home, you need a bit of a reset.   We need to get to back to a place where supply and demand are back together and where inflation is down low again, and mortgage rates are low again.

This will be a process were by ideally, we do our work in a way were the housing market settles in a new place.  And housing and credit availability are at appropriate levels