Janet Yellen Sees a ‘Very Depressed’ Housing Market

The Fed chief noted that housing is a small but important sector of the economy

Most Important Two Minutes of the Fed News Conference

While Federal Reserve Chair Janet Yellen heaped praise on the U.S. labor market in her press conference on Thursday, the housing market got little love.

Residential real estate "remains very depressed," she told reporters after announcing at the end of  a two-day meeting that policy makers had decided against raising the benchmark interest rate. "Demand for housing should be there and should materialize as the job market improves and income growth improves."

So what counts as a "very depressed" level of housing? Yellen cited housing starts that are "below levels that seem consistent with underlying demographics, especially in an economy that's creating jobs." Commerce Department data earlier Thursday showed that new-home construction dropped in August after a downward revision to the previous month, representing a pause in a general upward trend:

starts aug

The Fed chief noted that while it's "a very small sector of the economy," housing "plays a supporting role" to bigger drivers such as consumer and business spending. The central bankers "recognize that the housing market is sensitive to mortgage rates" and that an increase in the federal funds rate will eventually impact consumer borrowing costs. Right now, the average 30-year fixed rate is still lingering close to all-time lows:


One data point that might keep Fed officials buoyant on housing: Building permits for single-family homes, the biggest and most important part of the market, climbed in August to their best level since January 2008. That signals builders could become busier in the coming months.

The housing market has a couple chances to impress next week. Data on August sales of existing homes are scheduled for release Monday by the National Association of Realtors, followed by the Commerce Department's Thursday report on new-home sales.