A senior Federal Reserve official has warned that the United States cannot afford a “boom-and-bust cycle” in the housing market that would threaten financial stability, referring to growing concern about the central bank’s rising property prices.
“It’s very important for us to get back to the 2 percent inflation target, but the goal is for that to be sustainable,” Eric Rosengren, president of the Boston Federal Reserve, told the Financial Times. And for that to be sustainable, we can’t have a boom and bust cycle in something like real estate.
“I don’t expect that we will necessarily have a bust. But I do think it is worth paying close attention to what is happening in the housing market.
According to data from the National Association of Realtors last week, the median price of existing home sales rose 23.6 percent year on year in May, topping $350,000 for the first time.
Rosengren said that in the Boston real estate market, it has become common for cash-only buyers to prevail in bidding competitions, and that some have refused home inspections to gain an advantage with sellers.
“You don’t want a lot of glut in the housing market,” Rosengren said. “I would just highlight that boom and bust cycles in the real estate market have occurred in the United States many times, and around the world, often as a source of financial stability concerns.”
. said Housing market roar It should be a factor as the central bank considers slowing down or removing some of the massive monetary support to the economy that has been provided during the coronavirus pandemic.
The Fed was buying $40 billion of the agency’s mortgage-backed securities each month along with $80 billion of monthly Treasury debt as part of the asset purchase program.
Fed officials are now beginning to discuss reducing bond purchases. “When appropriate” to begin that process, Rosengren said, purchases of mortgage-backed securities should be reduced at the same rate as Treasury purchases. This means that direct support for housing finance will end more quickly.
“This means that we will stop buying MBS before we stop buying Treasuries,” he said.
James Bullard, President of the Federal Reserve Bank of St. Louis, is among those calling for the Federal Reserve to reassess its support for the housing market on the back of what signaled broader concerns about an emerging bubble.
Robert Kaplan, Dallas Federal Reserve Chairman, also called for the purchases to end “sooner rather than later,” particularly in light of mounting evidence of financial speculation in the housing market.
The Fed said it will only start reducing its asset purchases once it has made “substantive additional progress” toward its goals of 2 percent average inflation and full employment.
Given the rapid recovery, Rosengren said, “It is likely that the conditions to consider whether we have made more substantive progress before the start of next year will be met.”
Economic latest Federal Reserve forecast Central bank officials showed interest rates would increase from their current low level in 2023, earlier than previously expected. They also revealed a greater split within the Federal Open Market Committee over the expected course of monetary policy than has been the case.
“There is a great deal of uncertainty in the forecast,” Rosengren said. Some people will grow very fast [and] The terms of the tightening policy may apply sooner. And other people will think the recovery will be a little slower.”