Fed official's new warning on housing market

Boston Fed President Eric Rosengren is sending a warning on the U.S. housing market. Yahoo Finance’s Brian Cheung shares the details.

Video transcript

ZACK GUZMAN: I want to shift over to some warnings that we've been hearing out of a pretty prominent Fed official. That would be Boston Fed President Eric Rosengren, of course, chatting on Yahoo Finance last week with our own Fed reporter Brian Cheung. I want to bring him in, with a new warning when it comes to what he and the rest of the world saw play out with the last boom and bust in real estate, this time around, talking about, Brian, the fact that the US can't afford another one of those big boom and busts now.

BRIAN CHEUNG: Yeah, well, as you mentioned, Zack, one of the top Federal Reserve policymakers raising a red flag, if you will, over the housing market, drawing comparisons to what we're seeing in 2021 to what we saw in 2005 to 2007. Not exactly a good period, if you recall what happened in 2008 with the housing market crash.

But Boston Fed President Eric Rosengren telling Yahoo Finance last Friday that at least where he sits in the Boston area, it's not just the city that's seeing home price appreciation, it's some of these more rural areas as well, when you look at parts of western Massachusetts and even parts of Maine.

And that seems to be in line with what we see from home price data, the S&P CoreLogic Case Shiller National Home Price Index surging over 13% in the month of March. That was the fastest pace since December of 2005. Emily mentioned we're going to get a new fresh round of that data this week. It'll be interesting to see if that continues to be the case. But the Boston Fed President saying that could raise some financial stability concerns. Take a listen.

ERIC ROSENGREN: The reason I focus on housing prices and real estate prices generally is because that's a widely held asset and has tended to result in financial stability problems in many of our worst recessions. So think about the financial crisis of the Great Depression in the United States. But if you look at financial stability problems around the world, they tend to be tied to real estate.

So I think it's an area that bears monitoring. It's not at the point where we should be panicked. It's not at a point where we should be overly concerned. But if this were to continue and if it was starting to get embedded in people's expectations for where prices would be going, that would start to become a more significant concern.

BRIAN CHEUNG: So you can hear the Boston Fed President right there, saying, don't necessarily panic, but at least at the Federal Reserve, they are keeping an eye on that, or at least, they are in Boston. Now one elephant in the room is that the reason for the run-up in home prices is because the Federal Reserve has been lowering interest rates. It's pinned short-term borrowing costs at near zero. 30-year mortgage rates have, as a result, also been depressed, which leads to a lot of that home frenzy.

And then, of course, there's the Fed's purchases of mortgage-backed securities. It's buying about $40 billion a month. And the Boston Fed President saying that when the Fed, at some point, decides to start slowing those asset purchases, maybe they should be slowing those purchases at the same amount as their US Treasuries, which hopefully would bring an end to that buying program before the US Treasury purchases. So very interesting to watch in the months ahead, guys.

ZACK GUZMAN: Yeah, the other interesting thing that came out of that interview that you had, Brian, was Eric Rosengren's comments around stablecoins. And he, of course, is not the only Fed official who has been increasingly looking and warning about the growth of stablecoins. It made me spend my weekend looking in at it after that interview. I mean, what are we hearing from the Fed? And what has them so concerned and why they keep talking about these things?

BRIAN CHEUNG: Yeah, well, I mean, of course, when it comes to this type of space, stablecoins is something that a lot of people in the crypto space have been watching. But it was kind of news to those watching the central bank that apparently, there are those inside the ivory tower that are paying attention to that space as well.

And he mentioned by name Tether, in fact. It was part of a presentation that he had made earlier on that day and on Friday, mentioning that the amount of commercial paper and corporate debt exposure that Tether specifically has to the space raises concerns about whether or not it's really as stable as people are presenting it to be.

Now, of course, commercial paper and corporate bonds are different types of markets. But Rosengren was saying this within the context of a lot of money flowing out of prime money market funds and into stable coins off of the assumption that they're just as safe as some of those other funds.

And Rosengren is saying, look, this isn't necessarily something we need to see as a financial stability concern that could bring down the whole thing. But he was using it as a larger point to say, maybe there should be more regulatory control and oversight over that specific space. Again, a very interesting thing to watch, although I want to caution, Rosengren is not a policymaker in DC. So it was more him advocating his personal views than, say, a federal stance on this. But definitely, they're worth watching in that space, guys.

ZACK GUZMAN: Yeah, and then you got the New York Fed president or federal-- yeah, New York Fed President John Williams coming out today and talking about digital currencies, central bank digital currencies, and the questions around that, too. And of course, that does seem to be where things are going. So the stablecoin issue may be a short-term one. We'll see how it plays out in the long-term. But Brian Cheung, appreciate that.