DALLAS–While the Federal Reserve and other analysts have downplayed concerns over inflation, some members of the Fed admit they are wary of the potential for a new housing bubble.
Among them: Robert S. Kaplan, the president of the Federal Reserve Bank of Dallas, who has been “nervously eyeing” the housing market as he ponders the path ahead for monetary policy, the New York Times reported.
The Times pointed to data showing home prices are rising at a double-digit pace this year. The typical house in and around Dallas, for instance, sold for $306,031 in June of 2021, Zillow estimates, up from $261,710 a year earlier.
Several of Mr. Kaplan’s colleagues harbor similar concerns, the Times reported, stating they are worried that the housing boom could end up looking like a bubble, one that threatens financial stability. Others have also expressed worries the central bank’s big bond purchases could be helping to inflate it.
‘Makes Me Nervous’
“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 that was reported by the Times.
Bullard doesn’t believe matters are at crisis levels yet, but he believes the Fed should avoid fueling the situation further, the report added. “We got in so much trouble with the housing bubble in the mid-2000s.”
“Policymakers don’t need to look far to see escalating prices, because housing is growing more expensive nearly everywhere. 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,” the report stated. “A typical house in Boone, N.C., is worth $362,000, up from $269,000. Prices nationally have risen 15% over the past year, Zillow’s data show, in line with the closely watched S&P CoreLogic Case-Shiller index of home prices.”
Bankers Express Concerns
The report further noted that about half of small bankers in a recent industry survey said the current state of the housing market poses a “serious risk” to the United States economy.
The challenge ahead in housing is significant. ‘
“Fed officials face a particularly tricky calculus when it comes to housing,” the Times reported. “Their policies definitely help to drive demand. Bond-buying and low Fed interest rates make mortgages cheap, inspiring people to borrow more and buy bigger. But rates aren’t the sole factor behind the home price craze. It also traces back to demographics, a pandemic-spurred desire for space, and a very limited supply of new and existing homes for sale — factors outside of the central bank’s control.”
Fed Chair Jerome Powell recently told Congress, “Interest rates are one factor that’s supporting demand, but we really can’t do much about the supply side.”
Some Signs of ‘Control’
Still, despite the worries, the report pointed out “There are early signs that the market might be bringing itself under control. Applications for new mortgages have slowed this year, and existing home inventories have risen somewhat. Many housing economists think price increases should moderate later this year.
“Discussions about how and when the Fed will taper off its buying are ongoing, but most economists expect bond-buying to slow late this year or early next,” the report added. “That should nudge mortgage rates higher and slow the booming market a little.”