Christopher J Waller: The red hot housing market - the role of policy and implications for housing affordability

Speech (via webcast) by Mr Christopher J Waller, Member of the Board of Governors of the Federal Reserve System, at the "Recent Fiscal and Monetary Policy: Implications for US and Israeli Real Estate Markets" conference, sponsored by the Alrov Institute for Real Estate Research, the Coller School of Management, the New Jersey-Israel Commission, and the Rutgers Center for Real Estate, 24 March 2022.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Thank you, Debra, and thank you to the Alrov Institute and the Rutgers Center for Real Estate for the invitation to be part of this conference. Today, I would like to talk to you primarily about developments in the residential real estate market since the start of pandemic and then look ahead at the outlook for housing. I will consider how rental and home prices have increased and how monetary and fiscal policy have affected these prices.

As a member of the Federal Open Market Committee (FOMC), I watch real estate trends pretty closely because they have a bearing on our pursuit of maximum employment and price stability. Real estate makes a sizable contribution to gross domestic product, from both housing investment and consumption spending on housing services, which is what renters and homeowners pay for the shelter and amenities provided by housing. Real estate also matters for inflation. Housing services represent about 15 percent of the Personal Consumption Expenditure price index, and it represents an even larger share of another well-known inflation yardstick, the Consumer Price Index. Real estate is also a large and broadly held asset class, so it is important for the Federal Reserve's mission of promoting financial stability. So, my colleagues and I on the Board of Governors and the FOMC share your interest in what is happening and will happen in real estate markets.

As we all know, a singular feature of the U.S. expansion since the COVID-19 recession has been the red-hot housing market. Trust me, I know it is red hot because I am trying to buy a house here in Washington and the market is crazy. Both house prices and rents are up significantly across the nation, while vacancy rates for rented and owner-occupied homes are down.