The housing market continues to deal with affordability challenges, prompting the Biden Administration to unveil new initiatives aimed at addressing this pressing issue. However, in an exclusive interview with Yahoo Finance, US Secretary of the Treasury Janet Yellen tempered expectations, emphasizing that "there's no silver bullet" when it comes to solving the housing affordability crisis.

To gain deeper insights, Middleburg Communities Chief Economist Brad Case shares his perspectives on the ongoing affordability dilemma affecting US homebuyers.

Case highlights two factors driving the current market dynamics: first, the surge in demand is pushing home prices higher; and second, the Federal Reserve has "limited" impact, noting "the solution is really at the local level."

"If you bring down interest rates, all that does is make house prices go up more and that wrecks affordability," Case explains, advocating for a different approach: "What you really need is a moderation in house prices and the only way to get that is supply growth."

Watch Yahoo Finance's full, exclusive interview with US Secretary of the Treasury Janet Yellen.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Angel Smith

Video Transcript

Welcome back to Morning Brief brought to you by Invesco.

We've got the latest reading out on housing this morning, home prices rising 7% from a year ago setting a new record high in April as the market remains tight and higher home prices.

Will they continue to exacerbate the nation's affordability crisis?

In an exclusive interview.

Treasury Secretary Janet Yellen had this to say about the housing market in America.

I don't wanna say that there's a silver bullet.

Um I think we look to Congress to do much more.

Uh President Biden has proposed a program that would lead to the construction of 2 million um new housing units which um it would really make a sizable dent in the problem that we face here to weigh in.

We want to bring in Brad case joining us at the desk.

He's Middleburg community's chief economist and Brad.

Let's start there with what we just heard from Secretary Yellen when it comes to the fact that she said there's no silver bullet to addressing the nation's affordability crisis.

Some of the policies that have been laid out by the Biden administration.

Are they helping at all?

Why or why not or what more needs to be done.

So yes, I think, I think what she's announced is a, is a very good idea.

You have to keep in mind two things.

First of all, that, the biggest driver of high housing house prices is a big increase in demand and that's coming um from several sources.

One of it is just people moving out of living with friends and getting their own place.

There's also immigration.

I don't know, there's a lot of migration to especially the Southeast.

So, so demand is driving this growth in, in house prices.

Um And the solutions really are mainly at the local level.

Um uh So what, so what the federal government can do is kind of limited.

Um But the, the proposal that she talked about really does nail what the federal government can do.

I think that will be helpful.

You know, it's interesting because demand is one component of it, but it's also materials, those are higher labor that costs more.

You've also got more favorable land, especially as potential homeowners are looking at 15 or 30 year mortgage rates and trying to figure out, ok, what do I feel comfortable in terms of property that I'm buying into making sure that it holds up over that time when you're thinking about some of the hottest summers on record that we've been tracking over these past few years.

So how is that all playing into the equation too?

From what you're tracking.

Well, when you think about the, the, the mortgage interest rate piece of it, I mean, that, that's a, that's a situation where we're kind of stuck because yes, mortgage interest rates are high and that's preventing some people from buying.

It's also preventing a lot of people from selling because they're going to buy into a different house at a different mortgage interest rate.

Um, but at the same time, uh the the house prices are very high and that goes back to the demand part.

So what's gonna bring down affordability in the owner occupied part of the market if you bring down interest rates, all that does is make house prices go up more and that wrecks affordability.

What you really need is some moderation in house prices.

And the only way to get that is supply growth.

But uh we need supply growth on the rental side of the market as well as on the owner side of the market.

And part of the reason for that is that we think that we're in, we're witnessing a shift to uh among households to prefer renting for longer.

And that's because for the first time, they've had the opportunity to uh rent, professionally managed well built single family houses instead of having to buy a house if you want four walls and a yard, um you, you're able to rent it.

And what that means is you're not being forced to buy into something that maybe you'll want several years from now, you're, you're able to rent something that you want right now and then move into a bigger rental place or an owner occupied house later on when it makes sense for you, when should we expect to see some relief when it comes to pricing?

Well, we, we are seeing uh some relief uh when you look at the, at uh you know, uh you showed the house price uh appreciation numbers that came out this morning.

They're still very strong year to year on the rental side of the market, rent growth over the last year has been very close to zero, maybe even below zero, depending on which part of the market you're looking at and which data source you're looking at.

So that part of the problem really has been solved.

Um uh But we need to continue developing more rental housing in order to make sure that prices that rents don't clip uh don't uh creep up again because demand is still growing.

Whose fault is high home prices?

I mean, millennials get blamed for everything these days.

Is it, is it our fault that we're not buying into homes that we we can't afford right now.

Uh Even despite family formation that might be happening or job relocation or whatever the factor of the input is, no, I would say the real problem and, and the reason that what secretary Yellen uh talked about yesterday is so important is because the fault is is the the cost of developing new housing at all levels of all types in all areas.

But the result of that is that only the most expensive housing gets developed, we have to make it possible to develop and and doesn't need to be what we call affordable housing, you know, with, you know, um with uh with markets with subsidies and that sort of thing, it just has to be housing for normal people, housing for regular people and that is very difficult to develop.

So it's only the most expensive ho things that get developed and therefore that the price of the house goes up even though the people don't want those expensive houses, what they really want is moderate houses.

Brad Case, always a pleasure to speak with you and get some insights and perspective.

Brad Case, who's the Middlebrook community's chief economist.

Joining us here in studio all the way up from Virginia here today.

Thanks so much.

It's my pleasure to be here.