The housing market continues to face the challenge of rising home prices, leading the Biden administration to announce new initiatives to address the pressing issue. However, in an exclusive interview with Yahoo Finance, U.S. Treasury Secretary Janet Yellen tempered expectations, emphasizing that there is “no silver bullet to solve the housing affordability crisis.”
For deeper insight, Brad Case, Chief Economist at Middleburg Communities, shares his perspective on the ongoing home affordability dilemma affecting homebuyers in the United States.
Case highlights two factors driving the current market trends: first, home prices are rising due to a surge in demand, and second, he notes that the Federal Reserve's influence is “limited” and that “the solutions really lie at the local level.”
“Lowering interest rates will only make home prices rise further and make home affordability less attractive,” Case explained, advocating a different approach: “What we really need is stable home prices, and the only way to get that is through increased supply.”
Watch Yahoo Finance's full exclusive interview with U.S. Treasury Secretary Janet Yellen.
For more expert insights and the latest market trends, click here to listen to this entire episode of Morning Brief.
This post was written by Angel Smith
Video Transcript
Welcome to Morning Brief, brought to you by Invesco.
This morning we released the latest housing data, with home prices up 7% year over year to an all-time high for April as the housing market remains tight and home prices soar.
Will they continue to exacerbate the country's housing affordability crisis?
In an exclusive interview.
Treasury Secretary Janet Yellen had this to say about the US housing market:
I don't want to say there is a silver bullet.
Well, I think we expect more from Congress.
President Biden has proposed a program that would lead to the construction of 2 million new housing units, which would have a pretty significant impact on the problems we face.
We would love to have Brad Case at our desk.
He is the chief economist for the Middleburg Community, Brad.
Let me start by talking about the fact that Secretary Yellen said there is no silver bullet to solve the nation's financial crisis.
This is part of the policy put forward by the Biden administration.
Are they helping at all?
Why is this the case, why not, or what more needs to be done.
So I think what she announced is a very good idea.
You must keep two things in mind.
First of all, the biggest factor behind the rise in home prices is a huge increase in demand, which is coming from a few sources.
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One of them is people who leave their friends and live with their own homes.
There is also the issue of immigration.
I don't know, but there's a lot of migration, especially to the Southeast.
In other words, demand is driving home price increases.
Well, the solutions actually lie primarily at the local level.
Well, I guess that means there's only so much the federal government can do.
Um, but the proposal that she talked about really lays out exactly what the federal government could do.
I think that would be helpful.
What's interesting is that demand is one factor, but also materials, which are expensive labor-wise and expensive.
It also gives prospective home buyers a better deal, especially given that we are experiencing some of the hottest summers on record for the past few years, as they consider 15- and 30-year mortgage rates and whether they can rest assured that the property they are buying will hold up over that period.
So how does all this fit into the equation?
From what you're tracking.
Well, when you think about the mortgage interest rate piece, I mean, that's where we're stuck, because certainly mortgage interest rates are high and that's preventing some people from buying.
Also, many people are looking to buy another home with a different mortgage rate, preventing them from selling.
Um, but at the same time, house prices are going really high so that goes back to the demand piece.
So, does lowering interest rates make the owner-occupied portion of the market less affordable? It just makes home prices go up even more, undermining home affordability.
What we really need is to bring down housing prices.
And the only way to achieve that is by expanding supply.
But we need increased supply not just on the owner end of the market, but on the renter end as well.
One reason for this is that there is a growing preference among households for longer term rentals.
That's because, for the first time, instead of buying a home with four walls and a garden, you have the opportunity to rent a professionally managed, well-built, detached home. In other words, you can rent a home.
This means that rather than being forced to buy a property you may want in a few years' time, you can rent the property you want now and move on to a larger rental property or home ownership later when it suits you – but when can we expect some relief on the prices?
Well, the house price growth figures released this morning provide some relief.
The rental market is still performing well year over year, with rent growth over the past year being near zero or below zero, depending on which part of the market you're looking at and what data source you're looking at.
So that part of the problem has actually been solved.
Hmm, but demand is still growing so they need to continue developing rental housing to keep rents from falling or rising again.
Who is to blame for rising house prices?
I mean, millennials get blamed for everything these days.
Is it our fault for not buying homes that we can’t afford at this time?
Regardless of family formation, job changes, whatever the factors, I would say the real issue, and why what Secretary Yellen said yesterday was so important, is the cost of developing new housing at all levels, of all types, in all neighborhoods.
But the result is that only the most expensive housing gets developed. We need to enable development. And it doesn't have to be so-called affordable housing with a market for subsidies and so on. It has to be housing for ordinary people, ordinary people, but that's very difficult to develop.
So only the most expensive housing gets developed, which drives up housing prices because people don't want expensive housing – what they really want is affordable housing.
Brad Case, it's always a pleasure talking with you and getting your insight and perspective.
Brad Case, chief economist for Middlebrook Community;
Today, you came to visit us at our studio, far away from Virginia.
thanks so much.
It's an honor to be here.