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June 2019

Fed Reserve economists discuss constraints on housing activity

June 6, 2019

Although the U.S. economy is "in a good place" following recent periods of turmoil and uncertainty, one of the missing pieces of the expanding economy has been housing, according to economists who spoke at a recent Federal Reserve press briefing.

John Williams, president and CEO of the Federal Reserve Bank of New York, said there are lots of narratives about why housing activity is lagging despite a strong labor market and little evidence of inflationary pressures.

Williams and other speakers at the briefing pointed to demographics, preferences, and constraints such as tight credit as likely factors.

Economists noted the rate of homeownership was fairly steady over the three decades from 1965 to 1994, hovering around 64 percent, then peaked at over 69 percent in 2004 before receding to 62 percent in mid-2016. It has since rebounded to the current level of 64.2 percent, near long-term averages.

Barring unforeseen changes in the economy, homeownership rates will likely raise, thanks to the nation's aging population who are historically more likely to own. However, even though current renter households express a strong desire to own, the high prevalence of student debt and tight mortgage credit conditions will limit this group's opportunities for home ownership.

The Fed's press briefing coincided with the release of the 2019 Survey of Consumer Expectations Housing Survey. It shows respondents expect the rate of home prices in their zip codes to decline somewhat relative to a year ago, and that a large (but declining) majority of households still view housing as a good financial investment.