Single-family homes, both finished and under construction, in Irvine, Calif., in April.
Bing Guan/Bloomberg
Boston Federal Reserve President Eric Rosengren is the latest official at the central bank to warn about potential damage from surging house prices as its purchases of mortgage-backed securities come under scrutiny.
“You don’t want too much exuberance in the housing market,” Rosengren said, according to a Financial Times article published Sunday. A “boom and bust” cycle could lead to concerns regarding financial stability, he said.
“I’m not predicting that we’ll necessarily have a bust,” Rosengren told the newspaper. “But I do think it’s worth paying close attention to what’s happening in the housing market.”
For much of the past year, the U.S. housing market has been particularly hot. Although conditions cooled off in May, the seasonally-adjusted annual rate of existing home sales was 44.6% higher than in the same month in 2020 and 7.2% higher than in May 2019. Few homes are available relative to demand, and the median sales price for May was 23.6% higher than the year prior, according to data from the National Association of Realtors.
As prices have risen, the Fed’s buying of mortgage-backed securities—intended to keep mortgage rates low as part of its effort to aid the economy during the pandemic—has faced increased scrutiny. The bank said after the most recent meeting of the Federal Open Market Committee that it would continue to purchase at least $40 billion of agency mortgage-backed securities a month.
Barron’s Randall W. Forsyth wrote in an April column that the Federal Reserve “ought to consider whether its policies aimed to bolster housing may be having negative side effects,” such as contributing to rising housing costs and reducing home affordability.
Rosengren isn’t the first regional Fed president to raise concerns about the housing market. In May, Robert Kaplan, president of the Dallas Federal Reserve, told CNBC that the central bank should taper, or scale back, its asset purchases to offset “some of these excesses and imbalances.”
James Bullard, president of the Federal Reserve Bank of St. Louis, said earlier this month that the central bank’s continued purchase of mortgage-backed securities could be unnecessary. “I’m leaning a little bit toward the idea that maybe we don’t need to be in mortgage-backed securities with a booming housing market and even a threatening housing bubble here, according to some people,” said Bullard, according to The Wall Street Journal. “We don’t want to get back in the housing bubble game that cost us a lot of distress in the 2000s.”
The statements may not have a direct impact on the central bank’s policy. The next Federal Open Market Committee meeting will take place on July 27 and 28. Kaplan isn’t a voting member, while Bullard and Rosengren are alternates. They would vote only if a voting member is unable to attend.
Write to Shaina Mishkin at [email protected]
