When the Fed moves to slow inflation and moderate the economy, Boston Fed Pres. Eric Rosengren thinks housing should be targeted first to avoid any “boom and bust.”
BOSTON – In a recent interview, Federal Reserve Bank of Boston President Eric Rosengren warned that the United States cannot afford a “boom and bust cycle” in the housing market that would threaten financial stability.
“It’s very important for us to get back to our 2% inflation target, but the goal is for that to be sustainable. And for that to be sustainable, we can’t have a boom and bust cycle in something like real estate,” he says.
“I’m not predicting that we’ll necessarily have a bust. But I do think it’s worth paying close attention to what’s happening in the housing market,” he adds. “You don’t want too much exuberance in the housing market. I would just highlight that boom and bust cycles in the real estate market have occurred in the United States multiple times, and around the world, and frequently as a source of financial stability concerns.”
Rosengren says the housing market should be a factor as the central bank considers slowing or removing some of the hefty monetary support for the economy introduced during the coronavirus pandemic.
To keep the economy moving during the pandemic slowdown, the Fed has been purchasing $40 billion in agency mortgage-backed securities (MBS) per month, along with $80 billion in monthly Treasury debt as part of its asset purchase program.
“When it is appropriate” to trim that bond buying, Rosengren said MBS purchases should be reduced at the same rate as Treasury purchases. “That would imply that we would stop purchasing MBS well before we stopped purchasing Treasury securities,” he said.
Source: Financial Times (06/28/21) Politi, James; Smith, Colby
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This is a short but really good article. We all know that the real estate market goes through peaks and valleys but not many people know that it is mainly controlled by the Federal Reserve Bank. It's an important factor, though. The Federal Reserve Bank controls the flow of money and therefore controls what the market is going to do. In fact, I remember this was a question on my real estate exam when I was becoming a realtor. This is important for consumers to know because it will be a large factor on if/when you decide to buy or sell a home. We have been in a serious seller's market for some time now. There is little to no inventory and the demand is so high that many properties are selling for over ask. However, with this news, we will start to see a drift in this demand and it will slowly become a buyer's market. I predict that we are going to continue to see more homes go on the market, which will create a surplus of inventory, and therefor put us in a seller's market. The real question will be how quickly this happens. If you have been contemplating selling your home, now is the time to do it while you can still sell it at a premium price!
