Powell: US Housing Sector Needs a Correction

As the Federal Reserve delivered what it hopes will be a knockout blow to inflation—another 75 bps rate increase, with more on the way—Fed chief Jerome Powell went out of his way to finger housing prices as a prime culprit for the stubbornly high US inflation rate.

At a Wednesday press conference announcing the latest rate hike, the Fed chair for the first time conceded that the US can’t tame inflation without a recession—and he specifically called for “a correction” in US housing markets where he said home prices have spiraled to record heights at “an unsustainably fast level.”

“We’ve had a time of a red-hot housing market all over the country. The deceleration in housing prices that we’re seeing should help bring prices more in line with rents and other housing-market fundamentals, and that’s a good thing,” Powell said.

“For the longer term, what we need is supply and demand to get better aligned, so that housing prices go up at a reasonable level, at a reasonable pace, and people can afford houses again,” he said. “So we probably in the housing market have to go through a correction to get back to that place.”

Powell said he doesn’t expect housing markets to reverse course quickly. “Shelter inflation is going to remain high for some time. Hope for the best, plan for the worst,” the Fed chief ominously added.

Home prices have responded to the Fed’s rate hikes, which sent average 30-year fixed-rate mortgage rates climbing to 6.25% last week—their highest level since the collapse of the housing bubble in 2008.

The median price for existing US home sales, which topped a record $450K in the second quarter, has retreated to about $389K in Q3, according to the National Association of Realtors.

US home sales declined for the seventh straight month in August, the longest downward streak since 2007, as a combination of rising rates and high prices sent buyers to the sidelines.

Multifamily rents—which in the tightest markets have matched or even exceeded average monthly home mortgage payments—may be starting to plateau in some markets, but not at levels an average person might call affordable.

Manhattan’s six-month streak of record-high rents—median rent soared past $4,000 this summer, with the high end topping out at nearly $6K—ended in August, according to a new report from appraiser Miller Samuel and brokerage Douglas Elliman.

The median apartment rent in Manhattan dropped on new leases by $50 in August from July’s record high of $4,150, the report said. “Rents are robust, but they are starting to plateau,” said Jonathan Miller, president of Miller Samuel, Bloomberg reported.

Median monthly housing prices continue to exceed 30 percent of median monthly income—the standard benchmark of affordability—in households in at least 45 states.