During testimony before Congress on Thursday, lawmakers expressed concern to Federal Reserve Chair Jerome Powell that the central bank’s policies are decreasing Americans’ access to affordable housing.
In his prepared remarks, Powell said that inflation “has increased notably and will likely remain elevated in coming months before moderating.” However, Powell said that such inflation is temporary — and he did not reveal any intention to scale back the Fed’s $120 billion monthly bond purchases, which increase the supply of dollars in the interest of stimulating the economy.
Sen. Pat Toomey (R-PA) questioned Powell on the Fed’s policy to buy a monthly $40 billion in mortgage-backed securities — which represents one-third of the $120 billion stimulus package.
“Housing prices across the U.S. as a whole increased in May by more than 15% from the previous year,” said Toomey. “15% clearly is making housing less affordable, more out-of-reach for more people.”
Toomey noted that leaders within the Federal Reserve Banks of St. Louis, Dallas, and Boston are worried that mortgage-backed security buyouts “may be contributing to the current boom in real estate prices.”
“Are you at all concerned about the unintended consequences that are associated with $40 billion worth of mortgage-backed security purchases that continue month after month?” asked Toomey.
“Housing prices are going up, as you mentioned, around 15%. This is a very high rate of increase,” said Powell. “A number of factors are contributing — monetary policy is certainly one of those factors. There are also other factors: people have very strong balance sheets, so they’re able to make down payments. There are also supply factors that are constraining the supply, at least temporarily.”
Powell said that mortgage purchases are “somewhat more supportive of housing” than other asset purchases — although that is “not their intent.”
“Really, the larger point is that monetary policy is supporting this,” he continued. “That’s a discussion we’re going to be having on an ongoing basis.”
As Powell and Toomey acknowledged, housing costs are presenting difficulties to Americans who want to purchase a home.
One recent Zillow report found that the typical American home is remaining on the market for only six days. In some cities — such as Cincinnati and Columbus — time on the market can be as low as three days. Homeowners, therefore, saw an equity gain of $2 trillion between the first quarter of 2020 and 2021.
The Daily Wire previously explained that the Fed’s aggressive quantitative easing is leading to high real estate prices. Beyond the purchase of mortgage securities, the Fed’s near-zero goal for the federal funds rate — the interest rate at which private banks can borrow from one another overnight — causes other interest rates in the economy to drop.
At least in part due to quantitative easing, it is less costly for American homebuyers to take out a mortgage and buy a house, leading to a greater demand for real estate. With more demand, prices rise.
Despite the better-than-expected American economic recovery, the Fed currently has no concrete plans to roll back its monetary stimulus.