Jerome Powell says the 'real issue' behind the US housing crisis is 'not something the Fed can really fix' — here's why and what Americans can do

While rate cuts by the Fed typically lower borrowing costs, experts say increased affordability in mortgages could lead to a higher demand for homes that would drive up home prices.

Fed chairman Jerome Powell addressed these concerns in a press conference following the rate-cut announcement in September. He acknowledged that the housing market has been “in part frozen,” with many homeowners hesitant to sell because they are locked in at lower mortgage rates. As rates decrease, more people may be willing to sell, potentially increasing market activity. However, he noted that each sale could also bring a new buyer into the market, so the impact on overall demand remains uncertain.

“So, it's not obvious how much additional demand that would make,” he remarked, highlighting the complexity of predicting the housing market’s response to rate changes.

'The real issue'

Powell highlighted what he believes to be the true driver behind the housing crisis.

“The real issue with housing is that we have had and are on track to continue to have, not enough housing,” he said.

In other words, it’s a supply problem.

He explained that it has become increasingly difficult to find and zone land in desirable locations, and “all aspects of housing” face challenges.

“Where are we going to get the supply?” he asked, emphasizing the severity of the problem.

An analysis by Zillow published in June estimated the housing shortage to be 4.5 million homes as of 2022.

Powell’s assessment of the situation is stark: “This is not something that the Fed can really fix.”

However, he noted that the Fed can still play a role. By normalizing interest rates, he says the central bank can help normalize the housing market.

“That's the best thing we can do for householders, and then the supply question will have to be dealt with by the market and also by government,” he concluded.

Navigating the crisis

With high home prices and the Fed's recent pivot, prospective buyers face a difficult decision.