Fed Gov. Waller: Current Surge in Housing Costs and Previous Price Bubble Not Comparable

Today’s increase in housing prices doesn’t pose the same sort of risk to financial stability as the real estate bubble and crash of 2008, said Federal Reserve Gov. Christopher Waller. During a real estate event today, Waller addressed the implications of monetary and fiscal policy on housing affordability.

During the pandemic, growing demand and supply limits drove costs up. “Unlike the housing bubble and crash of the mid-2000s, the recent increase seems to be sustained by the substantive supply and demand issues . . . not by excessive leverage, looser underwriting standards or financial speculation,” Waller said, adding that mortgage borrowers entered the pandemic with stronger balance sheets and are better prepared to handle a drop in home prices than during the last housing downturn.

He also noted that large banks, like borrowers, are in a better position as well. “Large banks are substantially more resilient today than two decades ago,” he said. “In last year’s stress test, which featured a severe global recession that included a decline in home prices of over 20%, we projected the largest banks could collectively maintain capital ratios at more than double their minimum requirements—even after withstanding more than $470 billion in losses.”

Waller said that while he’s hopeful some of the pandemic-specific factors pushing up prices could begin to ease in the next year, “many issues will put upward pressure on home prices and rents,” in the longer term.

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