Real estate investors have done extremely well in 2020 despite millions of Americans out of work and displaced during the lockdown following the Covid-19 pandemic. Chains. Indeed, since the pandemic, the US housing market has soared to new highs and surged amid rising inflation. Meanwhile, US Federal Reserve Chairman Jerome Powell hinted this week that the US housing market needs a correction, and believes it can be fixed in a way that “gets people buying houses again”.
‘Falling house prices’ ‘a good thing’, says Fed chairman
Last Wednesday, the US Federal Reserve met to announce its next interest rate hike, with the central bank raising the federal funds rate by 75 basis points (bps). The Fed said last week that it aims to “achieve high employment”, and the central bank is still targeting long-term inflation of 2%. The three-quarters of a percentage point increase was the Fed’s third consecutive 75bps rate increase. Following the 75bps hike, stock markets, cryptocurrencies and precious metals seemed to be pricing in the Fed’s rate hike.
However, the Fed chairman discussed the U.S. housing market this week, and his comments have rattled markets over the past few days. Powell hinted at a real estate correction, or cooling of housing prices, to bring inflation back to the 2% level.
“The decline in housing prices that we’re seeing should help bring prices in line with rents and other housing market fundamentals — and that’s a good thing,” Powell insisted. “What we want long-term is for supply and demand to be better matched, for housing prices to rise at a reasonable rate, at a reasonable rate, and for people to be able to buy homes again,” Powell told the press on Wednesday.
The 16th Chairman of the Federal Reserve added:
From a business cycle perspective, this difficult correction should bring the housing market back into balance.
The average 30-year fixed mortgage interest rate rose from 27bps to 6.55% as economists said house prices were still ‘grossly overvalued’.
According to data from bankrate.com on September 24, 2022, the average rate for a 30-year fixed mortgage is 6.55%. The 30-year fixed mortgage rate has risen 27bps over the past seven days, according to Bankrate.com data. According to recent data compiled by real estate firm Redfin, ten states in the U.S. are shrinking faster than most. This includes US cities such as Seattle, Las Vegas, San Jose, San Diego, Sacramento, Phoenix, Oakland, Northport, Florida and Tacoma, Washington.
Clearly, the Fed’s choice of words from June’s ‘housing reset’ to today’s ‘housing reset really means a correction’ indicates that it is struggling to find success as home prices fall, home sales slow and construction pulls back sharply, according to John Burns real estate consultant Rick Palacios Jr. Research chief told Fortune on Thursday.
Following Powell’s housing market comments, USA Today’s Terry Collins, citing several experts, detailed that the United States “will almost certainly soon be in an endless housing correction.” Moody’s Analytics chief economist Mark Zandi told USA Today that he believes the U.S. housing market is recovering.
More than half of the 400 major housing markets in the U.S. are more than 25% “severely overvalued,” Zandi told Collins. “I think that’s going to happen in the next couple of years, and it’s going to be until mid-decade until things are done,” Moody’s Analytics chief economist said.
What did you think of Fed Chairman Jerome Powell’s Wednesday housing correction statements? Do you think the US real estate market will continue to cool? Let us know what you think about this in the comments section below.
Image credits: Shutterstock, Pixabay, Wiki Commons
DisclaimerThis article is for informational purposes only. It is not an offer or solicitation to buy or sell, or a recommendation or endorsement of any products, services or companies. Bitcoin.com does not provide investment, tax, legal or accounting advice. Neither the Company nor the Author shall be liable, directly or indirectly, for any damages or losses arising out of the use of or reliance on any content, goods or services referred to in this paragraph.