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Federal Reserve Chairman Jerome Powell on Wednesday acknowledged the brutal housing landscape Americans face amid rising prices and skyrocketing interest rates, saying that especially younger would-be buyers need a “reset.”

Powell made the comments during a lengthy press conference where he discussed the Fed’s approval of the biggest interest rate hike in 28 years. The rate hike is meant to combat inflation, which in May reached its highest point in four decades.

Near the end of the press conference, a reporter asked Powell for his take on the real estate market, which has seen steadily climbing home prices and more recently skyrocketing mortgage rates as well.

Powell replied that mortgage rates have been low thanks to the pandemic, but are now “coming back up to more normal, or above, levels.” However, he wasn’t sure what that would do to prices.

“The supply of finished homes, the inventory of finished homes that are for sale, is incredibly low,” Powell also said. “Historically low. So it’s still a very tight market. So prices may keep going up for a while even in a world where rates are up.”

Either way though, Powell described the current market as “a complicated situation.” And, significantly, indicated that something needs to change for more people to start climbing the real estate ladder.

“I would say if you’re a homebuyer, or a young person looking to buy a home, you need a bit of a reset,” Powell said. “We need to get back to a place where supply and demand are back together. And where inflation is down low again and mortgage rates are low again. So this will be a process whereby ideally we do our work in a way that the housing market settles in a new place and housing availability and credit availability are at appropriate levels.”

Powell did not elaborate further on what a potential “reset” would look like. His comment about “credit availability” in the housing market was clearly a reference to mortgage rates. That comment, as well as his earlier remark about mortgage rates being “above” normal levels, could theoretically be interpreted to mean that today’s suddenly elevated rates won’t be the new normal forever.

In any case, what is happening now with inflation and mortgage rates is unlike anything most practicing real estate agents have experienced in their careers. On Friday, the Labor Department’s latest report showing higher-than-hoped-for inflation triggered a bond market sell-off. That in turn sent mortgage rates climbing even higher, and by early this week average 30-year fixed rate loans were topping 6 percent.

Mortgage rates have been higher in the distant past. Freddie Mac data shows, for instance, that in the early 1980s average rates topped 18 percent. But the recent rate hikes have happened at an unprecedented pace, making it harder to immediately parse their impact on home sales and demand.

If it’s any consolation, though, even the experts aren’t sure what is going to happen next, with Powell repeatedly mentioning uncertainty during Wednesday’s news conference.

“We’re well aware that mortgage rates have moved up a lot,” Powell said during the conference, “and you’re seeing a changing housing market. We’re watching it to see what will happen.”

Watch Powell’s full remarks on the housing market here: 

Email Jim Dalrymple II

homebuying | recession
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