BAM Key Details:

  • The Federal Reserve implemented a quarter-point rate increase after a two-day meeting of the Federal Open Market Committee. 
  • Federal Reserve Chair Jerome Powell mentioned the housing market three times during his 55-minute news conference on July 26. 
  • During the question and answer session of the conference, Powell made a confusing remark, mentioning that there’s “a lot of supply coming online now,” which contradicts the low amount of active inventory for purchase in the real estate industry.

As expected, the Federal Reserve opted for a quarter-point rate increase after two days of meetings for the Federal Open Market Committee this week. 

During his 55-minute news conference on July 26, Jerome Powell mentioned housing three times—all of which were broken down by host Byron Lazine on today’s Hot Sheet. When the meeting minutes are released in the coming weeks, we’ll have the full breakdown of what happened during the meetings. But right now, we can go off of what was stated to the press. 

Let’s dive in and take a look at everything Powell had to say about the housing market, including a confusing statement during the question and answer segment of the conference.

Jerome Powell on the Housing Market

The first mention of housing came at 6:10 of the speech when Powell stated:

“Recent indicators suggest that economic activity has been expanding at a moderate pace. Growth in consumer spending appears to have slowed from earlier in the year. Although activity in the housing sector has picked up somewhat, it remains well below levels of a year ago, largely reflecting higher mortgage rates. And higher interest rates and slower output growth also appear to be weighing on business fixed investment.”

Jerome Powell

Federal Reserve Chair

Before stating that housing activity has picked up recently, Powell mentioned that the full effects of the restrictive policy the Fed has implemented have yet to be felt. 

For those who have been following the Fed’s decisions and Powell’s remarks, he continues to stick to a common theme: that the Fed is there to do its job, and as of now, that job is not yet completed.

The next mention of the housing market came at 9:05, when Powell stated:

“With today’s action, we’ve raised our policy rate by five and a quarter percentage points since early last year. We have been seeing the effects of our policy tightening on demand in the most interest rate-sensitive sectors of the economy, particularly housing and investment. It will take time, however, for the full effects of our ongoing monetary restraint to be realized, especially on inflation.”

Jerome Powell

Federal Reserve Chair

Last year, the Fed stated that the “most interest rate-sensitive sectors,” including tech/investments and real estate, would have a recession. Both of those scenarios came true. But, as Powell reiterated, the full effects of the Fed’s decisions are not yet realized. He continues to warn that there could be a softening in the job market. 

A Confusing Remark About Housing Supply

During the question and answer session of the conference, Powell responded to one question about the housing market. And, as Byron Lazine stated, “This is one of the oddest comments he’s made when he’s spoken about housing in recent memory.” 

Starting at 51:36, you can tune in to the question from Mark Hamrick with Bankrate: 

“You’ve talked in the past about getting the housing market back into better balance…and also that the market might have bottomed. Where do you see that situation and balance or lack thereof right now, particularly with the…constrained inventory of existing homes that might otherwise be coming onto market? At a time when existing homeowners are reluctant to move, and of course, all that happening with the 30-year fixed rate mortgage still around 7% on the heels of Fed tightening…are we getting closer to balance or farther away?”

Powell’s response comes at 52:15:

“I think we’ve got a ways to go to get back to balance, really for the reasons that you talked about. With existing homes, you know, there are many people who have low-rate mortgages, and whereas they might want to sell in a normal situation, they’re not going to because they have so much value in their mortgage. Which means that supply of existing homes is really really tight, which is keeping prices up.

“On the other hand, there’s, you know, there’s a lot of supply coming online now, and there are people coming in. A lot of the buyers are, you know, first-time buyers coming in buying…with these relatively elevated mortgage rates. 

“But I think this will take some time to work through. Hopefully, more supply comes online and, you know, we work through it. We’re still living through the…aftermath of the pandemic.”

Jerome Powell

Federal Reserve Chair

For anyone in the real estate industry, comments from the second half of that quote are confusing, starting with, “…there’s a lot of supply coming online now.”

Lazine, giving Powell the benefit of the doubt, shared his thoughts on the statement during the Hot Sheet

We know active inventory for purchase is low, with a year-over-year decrease in inventory, as shown weekly from Altos Research data in Housing Wire:

housing inventory

Source: Altos Research via Housing Wire

Even though Powell mentioned first-time buyers who are looking for inventory to purchase when talking about supply, it’s more likely that he was speaking about the supply of multi-family units. This chart from Bloomberg shows the level of multi-family units under construction, which will continue to come to the market through the end of the year. 

multi-family units under construction

Source: Bloomberg

Despite this confusing remark, Powell has continued to stick to the script of the Fed doing whatever it takes to do its job. And in the best-case scenario, it will help the economy avoid a recession. 

“(Powell) will go down as one of the best Federal Reserve Chairman of all time if he actually pulls this soft landing off, avoids recession, avoids mass layoffs, and gets inflation back to 2%.”

Byron Lazine