The Fed Can't Fix The Housing Market, According to Chairman Powell
“The housing market, it’s hard to game that out. The housing market is, in part, frozen because of lock-in, lower rates, people don’t want to sell their home because they have a very low mortgage and it would be quite expensive to refinance. As rates come down, people will start to move more and that is probably beginning to happen already. But remember, when that happens you’ve got a seller but you also got a new buyer in many cases. So it is not obvious how much additional demand that would make. The real issue with housing is that we have had, and are on track to continue to have, not enough housing. And so it’s going to be challenging, it’s hard to zone lots in places people want to live. All of the aspects of housing are far more difficult, and where are we going to get the supply? And this is not something the Fed can really fix. But as we normalize rates, I think you’ll see the housing market normalize. Ultimately by getting inflation broadly down and rates normalized and getting the housing cycle normalized, that is the best thing we can do for householders. And the supply question will have to be dealt with by the market, and also by the government.”
Fed Chair Jerome Powell's remarks highlight a crucial point: while lowering interest rates can make borrowing cheaper, it doesn't directly address the deeper issues of housing affordability. The strain in the housing market often stems from a mismatch between supply and demand, where there simply aren’t enough homes available to meet the needs of buyers. Factors like zoning regulations, construction costs, and a limited supply of available land play a significant role.
Lowering interest rates can provide short-term relief by reducing mortgage payments, but it can also drive up home prices as more buyers enter the market. To truly alleviate the affordability issue, there needs to be a more comprehensive approach, including increasing housing supply, easing regulations that restrict development, and supporting affordable housing initiatives. Powell’s statement underscores that monetary policy alone can't fix what is fundamentally a structural issue in the housing market.
