WASHINGTON (BLOOMBERG) – Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell are expected to discuss the boiling U.S. real estate market and the risks it could pose to the financial system in a meeting with other regulators Friday July 16.
The goal of the closed-door session: to ensure that the United States is not vulnerable to a crisis similar to the one it suffered more than a dozen years ago, when the eruption of A real estate price bubble drove the big banks to the brink of insolvency and the economy into a deep recession.
The meeting of the Financial Stability Supervisory Board, or FSOC, chaired by Dr. Yellen, will follow two days of Mr. Powell’s testimony to Congress on the Fed’s semi-annual monetary policy report.
Friday’s session will be the first time Dr Yellen’s FSOC has substantially discussed concerns about the housing market, according to people familiar with the matter. The issue was briefly raised at the previous two meetings, held in March and June, and then temporarily shelved, they said.
The Treasury is increasingly aware of the dangers that a sharp drop in house prices could pose to the economy after a sharp acceleration against the background of a low stock of homes for sale, according to people familiar with the matter .
But Dr Yellen’s team believe any financial stability risk is manageable, the people said.
A spokesperson for the Treasury declined to comment.
Unlike the real estate bubble which collapsed during the 2007-09 crisis, the quality of borrowers remains high. Mr Powell also appeared to be hopeful that another housing-centric disaster could be averted.
“So many financial crises in all countries, all western countries, that have happened over the past 30 years have been around housing,” he told reporters on April 28. “We really don’t see that here. We don’t see bad debt, unsustainable prices and that sort of thing.”
Dr Yellen, in a hearing before a House committee last month, highlighted the challenge of housing affordability, not to mention specifically the financial risks associated with rising prices.
The memory of the 2007 housing crisis convinced policymakers that it is worth being careful, especially given all the uncertainties surrounding the performance of the economy in the wake of a one-time global pandemic. century.
Fears of a housing bubble were fueled by the biggest price hike in more than 30 years in the S&P CoreLogic Case-Shiller index of real estate stocks.
“It’s scary,” former Treasury Secretary Lawrence Summers said on Bloomberg Television on July 2.
Mr Summers, a paid contributor to Bloomberg, also asked why the Fed continued to buy mortgage-backed securities as house prices soared.
Some housing experts have played down concerns about another real estate-related financial breakdown.
“There are only pockets of high risk loans all over the country,” said Edward Pinto, director of the Housing Center at the American Enterprise Institute. “The rest of the country’s neighborhoods are, relatively speaking, low risk – far lower than they were” before the financial crisis, he said.
But that doesn’t mean there aren’t financial stability issues associated with housing, said Laurie Goodman, founder of the Housing Finance Policy Center at the Urban Institute.
At the top of its list are the less regulated non-banks that dominate the issuance and management of mortgages, but lack access to government liquidity during a crisis.