In the wake of the Covid-19 pandemic, real estate investors have done extremely well, despite the millions of Americans who have been out of work and faced evictions during the 2020 lockdowns. Stimulus put a bandage on the financial wounds caused by Main Street store closures and gridlocked supply chains. In fact, America’s housing market boomed to new heights after the pandemic, skyrocketing amid rising inflation. Meanwhile, Federal Reserve Chair Jerome Powell hinted this week that the US housing market is in need of a correction and he believes it can be adjusted so that “people can afford houses again.”
“Slowing down in housing prices” is a “good thing,” says the Fed Chair
Last Wednesday, the US Federal Reserve met to announce the next rate hike and the central bank raised the federal funds rate by 75 basis points (bps). The Fed said last week that it aims to “maximize employment” and the central bank is still targeting 2% inflation over the long term. The three-quarters-point hike is the Fed’s third straight rate hike of 75 basis points. After rising 75 basis points, the stock markets, cryptocurrencies and precious metals appeared to have priced in the Fed’s rate hike.
However, the Fed Chair also discussed the US housing market this week and the comments have rocked markets for the past few days. Powell hinted at a housing correction, or a slowdown in house prices, to push inflation back towards 2% levels.
“The slowdown in house prices that we’re seeing should help bring prices closer to aligning with rents and other housing market fundamentals — and that’s a good thing,” Powell said. “In the long run, supply and demand need to be better matched for house prices to rise at a reasonable level and at a reasonable pace and for people to be able to afford houses again,” Powell told the press on Wednesday.
The 16th Chairman of the Federal Reserve added:
From a kind of economic perspective, this difficult correction should bring the housing market back into better balance.
Average rate on 30-year fixed-rate mortgages rises 27 basis points to 6.55%
Statistics from bankrate.com as of September 24, 2022 show that the current average for a 30-year term loan is 6.55%. Bankrate.com data shows that the interest rate on 30-year fixed-rate mortgages has risen 27 basis points in the past seven days. Ten regions in the US are falling faster than most areas, according to recent data from real estate firm Redfin. This includes American cities like Seattle, Las Vegas, San Jose, San Diego, Sacramento, Phoenix, Oakland, North Port, Florida, and Tacoma, Washington.
The shift in Fed rhetoric from June’s ‘real estate needs a rebalancing’ to today’s ‘residence rebalancing actually means a correction’ clearly shows that it is quite comfortable with falling home prices, slowing home sales and a significant pullback in the construction sector To achieve that is their mission,” John Burns Real Estate Consulting research director Rick Palacios Jr. told Fortune on Thursday.
Following Powell’s comment on the housing market, USA Today reporter Terry Collins quoted a number of experts as saying the US was “definitely in a housing correction with no end in sight”. Moody’s Analytics chief economist Mark Zandi told USA Today that he believes the US housing market is already declining.
More than half of the top 400 real estate markets in the US are “significantly overvalued” by more than 25%, Zandi told Collins. “I think that’s going to play out over the next couple of years and it’s going to take mid-decade to bottom out,” noted Moody’s Analytics chief economist.
What do you think of Fed Chair Jerome Powell’s comments on Wednesday’s housing correction? Do you think the US housing market will continue to cool down? Let us know what you think about this topic in the comment section below.
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