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Single-family homes in Irvine, Calif., in April, both completed and under construction.

Bloomberg/Bing Guan

As the central bank’s acquisitions of mortgage-backed securities come under examination, Boston Federal Reserve President Eric Rosengren is the latest authority to warn against the possible harm caused by rising house prices. According to a Financial Times report published Sunday, Rosengren stated, “You don’t want too much excitement in the property market.” According to him, a “boom and bust” cycle could cause financial instability.

Rosengren told the newspaper, “I’m not forecasting that we’ll necessarily have a bust.” “However, I believe it is worthwhile to pay close attention to what is going on in the housing market.” The housing market in the United States has been exceptionally heated for much of the past year. Despite the fact that conditions improved in May, the seasonally adjusted annual rate of existing house sales was 44.6 percent greater than the same month in 2020 and 7.2 percent higher than May 2019. According to data from the National Association of Realtors, there are few homes available in comparison to demand, and the median sales price in May was 23.6 percent more than a year ago. The Fed’s purchase of mortgage-backed securities, which was designed to keep mortgage rates low as part of its effort to boost the economy during the pandemic, has come under more scrutiny as prices have climbed. Following the Federal Open Market Committee’s most recent meeting, the bank announced that it would continue to buy at least $40 billion in agency mortgage-backed securities each month. In an April commentary for Barron’s, Randall W. Forsyth suggested that the Federal Reserve “should evaluate if its measures intended at bolstering housing may be having detrimental side effects,” such as contributing to rising house costs and lowering home affordability. Rosengren isn’t the first president of a regional Fed to express concern about the housing market. The Dallas Federal Reserve’s president, Robert Kaplan, told CNBC in May that the central bank should taper, or reduce, its asset purchases to counteract “some of these excesses and imbalances.”
The Federal Reserve Bank of St. Louis’ president, James Bullard, stated earlier this month that the central bank’s continuous acquisition of mortgage-backed securities may be unneeded. According to The Wall Street Journal, Bullard said, “I’m leaning a little bit toward the view that maybe we don’t need to be in mortgage-backed securities with a booming housing market and even a dangerous housing bubble here.” “We don’t want to play the housing bubble game again, which caused us so much pain in the 2000s.” The central bank’s policies may not be affected directly by the pronouncements. The next meeting of the Federal Open Market Committee will be held on July 27 and 28. Bullard and Rosengren are alternates, while Kaplan is not a voting member. Only if a voting member is unable to attend would they vote. Shaina Mishkin can be reached at shaina.mishkin@dowjones.com.
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