Don't blame Jerome Powell - or the Fed - if you can't afford to buy a house right now

Dow Jones
08/02

MW Don't blame Jerome Powell - or the Fed - if you can't afford to buy a house right now

By Aarthi Swaminathan

Trump says the Fed's high interest rates are keeping Americans from buying houses. There's more to it than that.

Has Trump got the wrong guy?

President Donald Trump has cast Federal Reserve Chair Jerome Powell's reluctance to lower interest rates as the biggest obstacle to aspiring home buyers.

"People aren't able to buy a house because this guy is a numbskull," Trump said of Powell ahead of Wednesday's Fed policy meeting, where the central bank left its benchmark interest rate unchanged despite pressure from Trump to cut borrowing costs.

Trump has said repeatedly that high interest rates are blocking Americans from buying houses. But Powell is not the main reason so few people can afford to buy a home right now, experts told MarketWatch.

With so little supply, home prices have shot up to all-time highs. The market is too expensive for both renters trying to buy their first homes and repeat buyers who want to upgrade or downsize. And many of those existing homeowners can't afford to let go of their low mortgage rates, fueling the so-called lock-in effect.

The Trump administration's scapegoat for America's housing-affordability crisis

Yes, elevated mortgage rates are part of the reason buying a home is unaffordable for so many.

Most people in the U.S. take out a mortgage when they buy a house. In 2024, 91% of first-time buyers financed their home with a mortgage, according to the National Association of Realtors.

For those people, higher mortgage rates have been a barrier. The 30-year fixed-rate mortgage averaged 6.72% as of July 31, according to Freddie Mac. The 30-year rate has been in this range for a while, hovering above 6% for most of the last three years.

That's a big jump from years past. A home buyer purchasing a $400,000 home with a 15% down payment and a 30-year mortgage rate of 3% - a common rate during the pandemic - would pay about $2,000 per month. With a 7% mortgage rate, that monthly payment would be nearly $2,800.

Trump has repeatedly singled out Powell, saying in a July 18 Truth Social post that Powell and the Fed "are choking out the housing market with their high rate, making it difficult for people, especially the young, to buy a house." A week later, the president said that housing in the U.S. was "lagging because Jerome 'Too Late' Powell refuses to lower Interest Rates."

But mortgage rates don't directly follow the direction of the Fed's benchmark short-term interest rate. Instead, they tend to move in tandem with the yield on the 10-year Treasury note BX:TMUBMUSD10Y, which typically rises when investors see inflation ahead. When the 10-year yield rises, so does the 30-year mortgage rate.

However, the timing of Powell's decision to raise interest rates from pandemic-era lows did contribute to housing-affordability challenges by making mortgage rates more volatile, said Michael Fratantoni, the chief economist of the Mortgage Bankers Association, an industry trade group.

"The Federal Reserve was late to increase rates in 2022," Fratantoni told MarketWatch. "If they had moved more quickly, they likely would not have needed to raise rates to the same extent. So there is some culpability for the extent of rate volatility we experienced."

See also: How the Trump-Powell showdown will move mortgage and credit-card rates

Powell's response to being blamed for the housing-affordability crisis

Asked at this week's Fed policy meeting about 7% mortgage rates and housing affordability, Powell said he doesn't believe the Fed plays the central role in those issues.

"We don't set mortgage rates at the Fed," Powell said in response to a question during the Wednesday press conference. "It's not that we don't have any effect. We do have an effect. But we're not the main effect."

The current housing-affordability crisis is more about the "long-term housing shortage that we have," Powell added. "We haven't built enough housing. This is not something the Fed can help with. And that'll be the case even after things normalize."

"So I think the best thing that we can do for housing is to have 2% inflation and maximum employment. And that's what we can contribute to housing," Powell said.

Some don't agree with that analysis. Federal Housing Finance Agency Director Bill Pulte, a Trump ally who has also repeatedly attacked Powell for not cutting interest rates, wrote on X in response to Powell's comment that "The Fed has EVERYTHING to do with Housing."

The Fed has more impact on the housing market than its officials would like to think, said David Dworkin, president and chief executive of the National Housing Conference, a left-leaning nonprofit advocacy group. The Fed's interest-rate policy directly affects home builders' borrowing costs, which in turn affects how many new homes are built.

The Fed's holdings of mortgage-backed securities also have an impact on mortgage rates. In theory, if the Fed buys up more mortgage-backed securities, that in turn could push mortgage rates down. But the Fed has not been doing this. It has been trying to trim its balance sheet by letting those securities mature and roll off.

The housing market has deeper, structural problems

The reality is that lower mortgage rates wouldn't be enough to solve affordability issues, experts told MarketWatch.

While lower rates might make it more affordable to buy a home with a mortgage, the housing market's affordability crisis is also fueled by high home prices. Those rising prices are driven by a mismatch between supply and demand.

Even as home sales are running at the slowest pace in 30 years, home prices continue to reach record highs. The median price of an existing home sold this June was $435,300.

Putting aside pandemic boom towns and the Sun Belt, where builders have been able to boost construction of new homes, most markets are still undersupplied. The pace of home building is still far below where it was two decades ago, prior to the Great Recession, and has not recovered fully.

That's in spite of demand skyrocketing over the years across most markets.

Even current homeowners, who have benefited from significant home-price appreciation, face a tough market. Many bought their homes when both mortgage rates and home prices were significantly lower. To sell now would mean confronting a market that has become much more expensive - and that doesn't incentivize them to move.

Hence, "rate cuts alone aren't enough," Amy Nixon, a housing economist and a contributor at MacroEdge Research, noted in a post on X. "We need lower prices and consistently higher wages," she wrote. "Some regions still need more inventory too."

For a typical house to become affordable to a buyer, the 30-year mortgage rate would need to drop to an "unrealistic" 4.43%, according to a recent report by the real-estate platform Zillow (ZG). The last time the 30-year rate was at that level was in March 2022.

In response to a request for comment, a White House spokesperson said the Trump administration's efforts to address housing affordability aren't focused only on interest rates.

"The Trump administration's push to restore the American Dream of homeownership goes beyond interest rates," spokesperson Kush Desai told MarketWatch. "Rapid deregulation to expand new home construction, historic working-class tax relief through The One Big Beautiful Bill, and America First trade deals that level the playing field for American workers reflect the Administration's two-pronged approach of cutting costs while raising wages for everyday Americans."

Home prices would need to fall 18% to be affordable for a median-income buyer

The other option to make housing more affordable is for home prices to fall.

But that's equally unrealistic, according to Zillow. "If rates and other factors held steady, home values would need to drop 18% for the typical home to be affordable for a median-income family," the company said.

And falling home prices is not necessarily a positive trend.

"The bulk of people in the U.S. don't have massive equity-market portfolios," James Knightley, chief international economist at ING, previously told MarketWatch. "The bulk of people's wealth is overwhelmingly in their property and their pension fund as well."

Most middle-income families pay more attention to the value of their home than the value of their stock-market portfolio, Mark Zandi, chief economist at Moody's Analytics $(MCO)$, told MarketWatch.

So when home prices fall or are poised to fall, Knightley said, "I am a little bit nervous" that those declines could negatively hurt consumers' outlook regarding the economy and their interest in spending. And that could start to weigh down the U.S. economy.

"We need a multifaceted all-of-government approach to addressing a housing-affordability crisis, which has become mainstreamed across America," Dworkin said. "We need to build more housing, and we need to build housing that's affordable to first-time homebuyers. But we need to do it in a way that doesn't depreciate home prices."

Two bills recently introduced in Congress seek to address housing affordability. One would eliminate capital-gains taxes on home sales; another would try to boost new-home construction by cutting red tape.

"We didn't get into this because of one policy, and we're not going to get out of this because of one policy," Dworkin added.

Read more: Republicans and Democrats are joining forces to fix America's housing affordability crisis. Here's what's in their plan.

What Powell and the Fed could do to revive the frozen housing market

So what could Powell do at this point to address the stagnant housing market?

"At this point, it would be best for housing markets if the Fed meets their mandates: conducting monetary policy in a manner that results in price stability and maximum employment," the MBA's Fratantoni said.

MW Don't blame Jerome Powell - or the Fed - if you can't afford to buy a house right now

By Aarthi Swaminathan

Trump says the Fed's high interest rates are keeping Americans from buying houses. There's more to it than that.

Has Trump got the wrong guy?

President Donald Trump has cast Federal Reserve Chair Jerome Powell's reluctance to lower interest rates as the biggest obstacle to aspiring home buyers.

"People aren't able to buy a house because this guy is a numbskull," Trump said of Powell ahead of Wednesday's Fed policy meeting, where the central bank left its benchmark interest rate unchanged despite pressure from Trump to cut borrowing costs.

Trump has said repeatedly that high interest rates are blocking Americans from buying houses. But Powell is not the main reason so few people can afford to buy a home right now, experts told MarketWatch.

With so little supply, home prices have shot up to all-time highs. The market is too expensive for both renters trying to buy their first homes and repeat buyers who want to upgrade or downsize. And many of those existing homeowners can't afford to let go of their low mortgage rates, fueling the so-called lock-in effect.

The Trump administration's scapegoat for America's housing-affordability crisis

Yes, elevated mortgage rates are part of the reason buying a home is unaffordable for so many.

Most people in the U.S. take out a mortgage when they buy a house. In 2024, 91% of first-time buyers financed their home with a mortgage, according to the National Association of Realtors.

For those people, higher mortgage rates have been a barrier. The 30-year fixed-rate mortgage averaged 6.72% as of July 31, according to Freddie Mac. The 30-year rate has been in this range for a while, hovering above 6% for most of the last three years.

That's a big jump from years past. A home buyer purchasing a $400,000 home with a 15% down payment and a 30-year mortgage rate of 3% - a common rate during the pandemic - would pay about $2,000 per month. With a 7% mortgage rate, that monthly payment would be nearly $2,800.

Trump has repeatedly singled out Powell, saying in a July 18 Truth Social post that Powell and the Fed "are choking out the housing market with their high rate, making it difficult for people, especially the young, to buy a house." A week later, the president said that housing in the U.S. was "lagging because Jerome 'Too Late' Powell refuses to lower Interest Rates."

But mortgage rates don't directly follow the direction of the Fed's benchmark short-term interest rate. Instead, they tend to move in tandem with the yield on the 10-year Treasury note BX:TMUBMUSD10Y, which typically rises when investors see inflation ahead. When the 10-year yield rises, so does the 30-year mortgage rate.

However, the timing of Powell's decision to raise interest rates from pandemic-era lows did contribute to housing-affordability challenges by making mortgage rates more volatile, said Michael Fratantoni, the chief economist of the Mortgage Bankers Association, an industry trade group.

"The Federal Reserve was late to increase rates in 2022," Fratantoni told MarketWatch. "If they had moved more quickly, they likely would not have needed to raise rates to the same extent. So there is some culpability for the extent of rate volatility we experienced."

See also: How the Trump-Powell showdown will move mortgage and credit-card rates

Powell's response to being blamed for the housing-affordability crisis

Asked at this week's Fed policy meeting about 7% mortgage rates and housing affordability, Powell said he doesn't believe the Fed plays the central role in those issues.

"We don't set mortgage rates at the Fed," Powell said in response to a question during the Wednesday press conference. "It's not that we don't have any effect. We do have an effect. But we're not the main effect."

The current housing-affordability crisis is more about the "long-term housing shortage that we have," Powell added. "We haven't built enough housing. This is not something the Fed can help with. And that'll be the case even after things normalize."

"So I think the best thing that we can do for housing is to have 2% inflation and maximum employment. And that's what we can contribute to housing," Powell said.

Some don't agree with that analysis. Federal Housing Finance Agency Director Bill Pulte, a Trump ally who has also repeatedly attacked Powell for not cutting interest rates, wrote on X in response to Powell's comment that "The Fed has EVERYTHING to do with Housing."

The Fed has more impact on the housing market than its officials would like to think, said David Dworkin, president and chief executive of the National Housing Conference, a left-leaning nonprofit advocacy group. The Fed's interest-rate policy directly affects home builders' borrowing costs, which in turn affects how many new homes are built.

The Fed's holdings of mortgage-backed securities also have an impact on mortgage rates. In theory, if the Fed buys up more mortgage-backed securities, that in turn could push mortgage rates down. But the Fed has not been doing this. It has been trying to trim its balance sheet by letting those securities mature and roll off.

The housing market has deeper, structural problems

The reality is that lower mortgage rates wouldn't be enough to solve affordability issues, experts told MarketWatch.

While lower rates might make it more affordable to buy a home with a mortgage, the housing market's affordability crisis is also fueled by high home prices. Those rising prices are driven by a mismatch between supply and demand.

Even as home sales are running at the slowest pace in 30 years, home prices continue to reach record highs. The median price of an existing home sold this June was $435,300.

Putting aside pandemic boom towns and the Sun Belt, where builders have been able to boost construction of new homes, most markets are still undersupplied. The pace of home building is still far below where it was two decades ago, prior to the Great Recession, and has not recovered fully.

That's in spite of demand skyrocketing over the years across most markets.

Even current homeowners, who have benefited from significant home-price appreciation, face a tough market. Many bought their homes when both mortgage rates and home prices were significantly lower. To sell now would mean confronting a market that has become much more expensive - and that doesn't incentivize them to move.

Hence, "rate cuts alone aren't enough," Amy Nixon, a housing economist and a contributor at MacroEdge Research, noted in a post on X. "We need lower prices and consistently higher wages," she wrote. "Some regions still need more inventory too."

For a typical house to become affordable to a buyer, the 30-year mortgage rate would need to drop to an "unrealistic" 4.43%, according to a recent report by the real-estate platform Zillow (ZG). The last time the 30-year rate was at that level was in March 2022.

In response to a request for comment, a White House spokesperson said the Trump administration's efforts to address housing affordability aren't focused only on interest rates.

"The Trump administration's push to restore the American Dream of homeownership goes beyond interest rates," spokesperson Kush Desai told MarketWatch. "Rapid deregulation to expand new home construction, historic working-class tax relief through The One Big Beautiful Bill, and America First trade deals that level the playing field for American workers reflect the Administration's two-pronged approach of cutting costs while raising wages for everyday Americans."

Home prices would need to fall 18% to be affordable for a median-income buyer

The other option to make housing more affordable is for home prices to fall.

But that's equally unrealistic, according to Zillow. "If rates and other factors held steady, home values would need to drop 18% for the typical home to be affordable for a median-income family," the company said.

And falling home prices is not necessarily a positive trend.

"The bulk of people in the U.S. don't have massive equity-market portfolios," James Knightley, chief international economist at ING, previously told MarketWatch. "The bulk of people's wealth is overwhelmingly in their property and their pension fund as well."

Most middle-income families pay more attention to the value of their home than the value of their stock-market portfolio, Mark Zandi, chief economist at Moody's Analytics $(MCO.AU)$, told MarketWatch.

So when home prices fall or are poised to fall, Knightley said, "I am a little bit nervous" that those declines could negatively hurt consumers' outlook regarding the economy and their interest in spending. And that could start to weigh down the U.S. economy.

"We need a multifaceted all-of-government approach to addressing a housing-affordability crisis, which has become mainstreamed across America," Dworkin said. "We need to build more housing, and we need to build housing that's affordable to first-time homebuyers. But we need to do it in a way that doesn't depreciate home prices."

Two bills recently introduced in Congress seek to address housing affordability. One would eliminate capital-gains taxes on home sales; another would try to boost new-home construction by cutting red tape.

"We didn't get into this because of one policy, and we're not going to get out of this because of one policy," Dworkin added.

Read more: Republicans and Democrats are joining forces to fix America's housing affordability crisis. Here's what's in their plan.

What Powell and the Fed could do to revive the frozen housing market

So what could Powell do at this point to address the stagnant housing market?

"At this point, it would be best for housing markets if the Fed meets their mandates: conducting monetary policy in a manner that results in price stability and maximum employment," the MBA's Fratantoni said.

(MORE TO FOLLOW) Dow Jones Newswires

August 02, 2025 08:03 ET (12:03 GMT)

MW Don't blame Jerome Powell - or the Fed - if -2-

"If the Fed gets monetary policy right over time, longer-term rates like mortgage rates will be lower and more stable on average," he added. And "that would benefit housing affordability."

Jim Bullard, the former president of the Federal Reserve Bank of St. Louis, told MarketWatch in an April interview that he was "a little bit pessimistic about housing."

"I think it has gotten quite a ways away from a steady state. And it's going to take a long time [to fix because] it's a slow-moving market. We just didn't build enough houses after the global financial crisis," he said. "It is going to take a long time to come back into equilibrium."

What personal-finance issues would you like to see covered in MarketWatch? We would like to hear from readers about their financial decisions and money-related questions. You can fill out this form or write to us at readerstories@marketwatch.com. A reporter may be in touch to learn more. MarketWatch will not attribute your answers to you by name without your permission.

-Aarthi Swaminathan

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

 

(END) Dow Jones Newswires

August 02, 2025 08:03 ET (12:03 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.

应版权方要求,你需要登录查看该内容

免责声明:投资有风险,本文并非投资建议,以上内容不应被视为任何金融产品的购买或出售要约、建议或邀请,作者或其他用户的任何相关讨论、评论或帖子也不应被视为此类内容。本文仅供一般参考,不考虑您的个人投资目标、财务状况或需求。TTM对信息的准确性和完整性不承担任何责任或保证,投资者应自行研究并在投资前寻求专业建议。

热议股票

  1. 1
     
     
     
     
  2. 2
     
     
     
     
  3. 3
     
     
     
     
  4. 4
     
     
     
     
  5. 5
     
     
     
     
  6. 6
     
     
     
     
  7. 7
     
     
     
     
  8. 8
     
     
     
     
  9. 9
     
     
     
     
  10. 10