Powell: 'Resetting' The Housing Market

In last weeks meeting, Fed Reserve Chairman spoke about the housing market saying the following:

"We saw [home] 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 affect residential investment? Not really sure. How much will it affect housing prices? Not really sure. Obviously, we are watching that quite carefully…It’s a very tight market. So prices might keep going up for a while, even in a world where rates are up. So it’s a complicated situation and we watch it very carefully. I'd say if you are a homebuyer, somebody or a young person looking to buy a home, you need a bit of a reset. We need to get back to a place where supply and demand are back together and where inflation is down low again, and mortgage rates are low again."

There were some very interesting notes in this carefully worded statement:

Uncertainty
Several times he acknowledges uncertainty with what will happen with level of purchase activity of residential property and with prices.

Home Prices Continuing To Rise
He does acknowledge prices may continue to rise in coming months in spite of higher rates due to incredibly tight market.

'Reset' Needed
He mentioned a 'reset' is needed bring better balance to the market, and stabilize prices through less competition.

Goal: Low Inflation & Low Mortgage Rates
It was interesting to note he is wanting to see (and perhaps expecting) future mortgage rates lower than what they are today.

Our takeaways from these notes...

Controlling Home Prices Is a Key To Fighting Short Term Inflation - it seems evident the Fed is wanting to get home appreciation nationally back to more historic levels as part of their efforts to control inflation, though they acknowledge this could take time due to the significant lack of supply of homes.

Return to Lower Mortgage Rates - the Fed seems to indicate the desire for mortgage rates to be lower in the future as part of standard policy. This creates potential opportunity for those needing and wanting to purchase now to purchase with today's rates with an eye on a future refinance to decrease their ownership costs. Additionally, based on this idea, borrowers may consider using an adjustable rate mortgage to help with affordability today while bridging the gap to potential lower rates in the future.

Local vs. National Markets - the Fed looks at the Nation as a whole while making predictions, and their views of supply and demand factor in areas where development of housing is far less constrained than we have in the Puget Sound area. Due to growth management, cost of land and other factors, we have not built nearly enough new housing to meet demand for more than a decade, so we have a built up level of demand which will likely cushion any reset of our market and may even lead to plateau of pricing rather than losses in value in our market.