During yesterday’s FOMC press conference, Federal Reserve Chair Jerome Powell announced that the Fed chose to pause rate hikes, as expected by the majority of analysts.
While Powell spoke in length about the labor market and inflation, he also spoke about housing a total of five times during the press conference. On today’s Hot Sheet, host Byron Lazine broke down the press conference—and we’re sharing all of Powell’s comments specific to the housing below.
POWELL’S INTRODUCTORY COMMENTS ON HOUSING
During Powell’s introductory remarks, he mentioned the housing sector two times. The first mention came at 01:42:
“Recent readings on consumer spending have been particularly robust. Activity in the housing sector has picked up somewhat, though it remains well below levels of a year ago largely reflecting higher mortgage rates. Higher interest rates also appear to be weighing on business fixed investments.” Jerome Powell - Federal Reserve Chair
As Byron pointed out, when Powell references an increase in activity in the housing sector, he’s speaking about a longer run than the past couple of weeks. Many agents, especially over the past two weeks, have felt activity in the market slowing.
At 04:35, Powell touched on housing again, as how spoke about consumers feeling the effects of inflation the most:
“My colleagues and I are acutely aware that high inflation imposes significant hardship as it erodes purchasing power, especially for those least able to meet the higher costs of essentials like food, housing and transportation We are highly attentive to the risks that high inflation poses to both sides of our mandate, and we are strongly committed to returning inflation to our 2% objective.” Jerome Powell
-Federal Reserve Chair
HOUSING SUPPLY AND THE LOCK-IN EFFECT
Kyle Campbell from American Banker asked two direct questions about the housing market—specifically housing supply and the mortgage lock-in effect—at 42:51. Campbell asked the following:
“You’ve said slower shelter cost growth is in the pipeline and will reflect in inflation readings as new leases are signed, but there’s also some questions out there about the way housing costs are measured, particularly the use of rental equivalence which are estimates from homeowners about what their homes would rent for if they were in the rental market.
“So my question is, how much of the effort to tame inflation, both as it’s measured and felt by the broader public, hinges on housing supply? And then as far as a constrained housing supply being sort of exacerbated by this sort of lock-in effect of mortgages being higher now than they were at their recent historic lows—how is that going to impact future thinking about taking interest rates to that lower Bound in the future?”
Powell responded first to the question about supply, without making any mention of rent estimates from homeowners. On the Hot Sheet, Byron pointed out that this is probably because Powell knows it’s an ineffective measure for rental prices.
“So on the supply point, of course, supply is very important over time in setting house prices and for that matter rents. And so supply is kind of structurally constrained. But in terms of where inflation’s going in the near term though, as you obviously know, a lot of it is leases that are running off and then being re-signed or re-leased at a level that’s not as—it won’t be that much higher. A year ago it would have been much higher than it was a year before, now it may be below or at the same level. So as those leases are rolling over we’re seeing what we expect, which is measured housing services inflation coming down.” Jerome Powell - Federal Reserve Chair
