Rising Demand in Construction is Putting Pressure on Pricing

Rising demand mixed with slow pace of construction are putting pressure on prices.

According to Reuters, Federal Reserve Governor Michelle Bowman on Monday flagged a range of economic and financial stability risks posed by the housing market, particularly noting that rising demand and a slow pace of construction are putting upward pressure on prices.

“The supply of new homes has been held back by shortages of materials, labor, and developed lots,” Bowman said in remarks prepared for delivery to a Women in Housing and Finance gathering. “I anticipate that these housing supply issues are unlikely to reverse materially in the short term, which suggests that we are likely to see higher inflation from housing for a while.”

Bowman did not speak directly to the outlook for the broader economy or to monetary policy in her prepared remarks. And far from signaling a one-sided alarm about a further surge in housing prices, Bowman also noted the potential strains that could arise from a decline in house prices.

Bowman also said she was watching carefully how banks are transitioning borrowers out of forbearance. “If servicers handle loan modifications poorly and on a large scale, the macroeconomy and financial stability can be affected as well,” she said, adding that so far she is “cautiously optimistic” that a smooth transition by Fed-supervised banks will mean no material effect on the larger economy.

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