A Fed governor argues for quickly cutting bond-buying, as debate intensifies.
Some Federal Reserve officials are worrying that the housing boom could end up looking like a bubble, one that threatens financial stability, and that the central bank’s big bond purchases could be helping to inflate it.
Policymakers don’t need to look far to see escalating prices, because housing is growing more expensive nearly everywhere, The New York Times’s Jeanna Smialek reports. Buying a typical home in Boise, Idaho, cost about $469,000 in June, up from $335,000 a year ago, based on Zillow estimates of local housing values. A typical house in Boone, N.C., is worth $362,000, up from $269,000. Prices nationally have risen 15 percent over the past year, Zillow’s data shows, in line with the closely watched SP CoreLogic Case-Shiller index of home prices, which rose a record 16.6 percent in the year through May.
“It’s making me nervous that you’ve got this incipient housing bubble, with anecdotal reports backed up by a lot of the data,” James Bullard, the president of the Federal Reserve Bank of St. Louis, said during a call with reporters on Friday. He doesn’t think things are at crisis levels yet, but he says the Fed should avoid feeding the situation further.
Industry experts say the boom emerged from a cocktail of low interest rates, booming demand and supply bottlenecks. It’s a situation that many are feeling acutely with no single policy to blame and no easy fix.
Fed officials face a particularly tricky calculus when it comes to housing.
Their policies definitely help to drive demand. Bond-buying and low Fed interest rates make mortgages cheaper, inspiring people to borrow more and buy bigger. But rates aren’t the sole factor behind the home price surge. There are also demographics, a pandemic-spurred desire for space, and a very limited supply of homes for sale — factors outside the central bank’s control.
Article source: https://www.nytimes.com/live/2021/08/02/business/economy-stock-market-news/