NAHB Concerns Highlighted in Fed Testimony The Fed Chairman faced some tough questions during his semi-annual testimony before Congress this week, some of which were the direct product of NAHB's effort to focus attention on the effects of rising interest rates on housing. In questioning Chairman Ben Bernanke, Senator Paul Sarbanes (D-Md.) quoted directly from an NAHB letter registering our concerns about the impact of rising interest rates on housing affordability. Sarbanes also specifically noted NAHB's observation that rising rates, set in motion by the Fed's monetary tightening, have had the effect of firming up rental markets and raising the "owners' equivalent rent" components of core inflation measures that the Fed is trying to contain.
When Bernanke testified the following day before the House of Representatives, at NAHB's behest Rep. Gary Miller (R-Calif.) also closely questioned the chairman about the effect of rising rates on housing costs, cautioning Bernanke that "Every time you raise interest rates, you price buyers out of the market," and again pressing him on the "owners' equivalent rent" issue. For his part, the Chairman acknowledged the validity of the point about rents rising with interest rates, but contended that "the increase in inflation we've seen is a much broader phenomenon than that single component."
The fact that such issues were raised by more than one member of Congress is a testament to NAHB's credibility and clout on Capitol Hill, and solid evidence that our concerns about housing's "soft landing" being threatened by overly aggressive monetary tightening are in fact being heard by lawmakers as well as the Fed Chairman himself. The Chairman did promise to "keep a close eye on housing" and now certainly understands that Congress and NAHB are keeping a close eye on what the Fed does, as well.
A transcript of Bernanke's testimony — not including the question-and-answer period that followed — is available on the Federal Reserve Web site. His prepared remarks on housing essentially emphasized that an orderly cooling process of the kind NAHB's forecasts have foreseen is underway; however, he acknowledged that the Fed operates in an uncertain environment and his written report highlighted the downside risks to housing. | 
