Podcast: What War and Fed Changes Mean for Housing Market and Economy
On the latest episode of NAHB’s podcast, Housing Developments, CEO Jim Tobin and COO Paul Lopez are joined by Chief Economist Dr. Robert Dietz to discuss the latest economic news and what it means for housing.
Unprecedented Changes in the Fed Board
Notable economic news this week came from the April meeting of the Federal Open Market Committee, which opted to maintain its current stance and leave interest rates unchanged. But the bigger news has been the future of soon-to-be former Fed Chair Jerome Powell following his eight-year tenure. Powell will stay on as Kevin Warsh steps into the chair position.
“It is unusual, and it’s unprecedented that the former chair would be there in the background while the new chair establishes his leadership,” Dietz noted.
By not fully vacating his role with the Fed, Powell also prevents President Trump from selecting another governor for the board.
“What we’ve seen over the last decade is the Federal Reserve looking more like the Supreme Court in terms of the internal politics, in terms of picks,” Dietz added, which has led to more divided outcomes compared to prior FOMC monetary policy decisions.
Dietz delves more into what to expect from the incoming chair and his expected policy stances.
Economic Uncertainty Continues to Impact Housing Market
The Iran war has notably sent oil prices surging, which are impacting the price of building materials because of increased transportation costs.
But it has also led to a 40-basis point increase in the 10-year Treasury rate as frictions with global investors have made them reluctant to invest in U.S. government debt.
“Who’s going to pay for that? Home buyers,” Dietz noted. “Because when the 10-year Treasury rate goes up, it gets more expensive to develop apartments, and it gets more expensive to buy homes.”
With the Treasury rate standing at 4.04% at the time of taping, mortgage rates are also inching back toward 6.5%. Combined with a soft market, it will be challenging home buying season for buyers unless they are able to finance with cash.
There are a few somewhat bright spots in the economy — including housing starts, which will likely be tempered by rising rates, and income growth, which is outpacing inflation.
“It should help housing demand,” Dietz explained. “But we need stability in the headlines.”
Key Factors Heading into Midterms
Economic factors will be important to voters as midterms approach. Tobin identified additional challenges that House Republicans will face in the months ahead:
- Midterms are never good for the party in power.
- The Republican majority is slim.
- Redistricting efforts tried to mitigate some of the headwinds for Republicans, but the Democrats have struck back, most recently in Virginia.
Tobin noted that that getting out of the Iran war, bringing gas prices back down, focusing on deregulation and moving forward on the 21st Century ROAD to Housing Act could make an impact.
What’s Next for Housing
As industry professionals continue to power through these economic headwinds, NAHB wants to know how we can position you for success — not just in the short term, but the years head. To help, NAHB has launched its Industry Pulse Check, the first step in NAHB’s Blueprint to 100 initiative. Share your feedback at blueprint.nahb.org.
Listen to the full episode of the podcast below and subscribe to Housing Developments through your favorite podcast provider, or watch all the episodes on YouTube.
