The red-hot housing market is making it hard for even Fed governors to buy a house

• Even Fed governors are having a tough time in today's housing market.
• "I am trying to buy a house here in Washington and the market is crazy," governor Christopher Waller said Thursday.

Even the policymakers who move mortgage rates are fed up with the US housing market.

There's been little relief for buyers so far as housing prices have rocketed ever higher in the last few years. Federal Reserve Governor Christopher Waller knows it personally. The official spoke about housing in a Thursday speech, detailing how the market got so strained and highlighting the Fed's effects on home demand.

Waller also noted he's among the latest to run up against the price surge.

"A singular feature of the US expansion since the COVID-19 recession has been the red-hot housing market," the Fed governor said. "Trust me, I know it is red hot because I am trying to buy a house here in Washington and the market is crazy."

Inflation has hammered every corner of the economy over the past year, but the housing market has been particularly hot. Historically low mortgage rates and overwhelming demand sparked a buying spree early in the pandemic and pulled nationwide inventory to record lows. The few homes still available quickly saw bidding wars push prices sharply higher. Home prices soared 18.8% through 2021, marking the largest annual gain since at least 1988, according to the S&P CoreLogic Home Price Index.

To be sure, the Washington, DC market hasn't seen as large a rally as the rest of the country. Prices leaped 10.5% through last year, according to S&P CoreLogic's measure. Still, the US capital hadn't seen an annual gain that large since 2005, when prices spiked 20% in a single year.

Waller also flagged pressures facing renters. Rents are already outpacing their 2021 growth, with the median one-bedroom monthly price up 12.2% year-over-year, according to Zumper. That placed monthly rent at a record-high of $1,400.

Two-bedroom rents have similarly surged, gaining 13.5% over the past year to a nationwide median of $1,723 per month.

The outlook for US rents is concerning, according to Waller. The governor cited recent research that suggests the rate of rent inflation in the Consumer Price Index will double in 2022. That will leave overall inflation higher and "has implications for monetary policy," Waller said, possibly hinting the Fed will have to raise interest rates more aggressively to cool down rent increases.

Still, for all the wild price gains in the housing market, the landscape doesn't share the risks that emerged during the late-2000s bubble, the Fed governor added. The banking-sector risks that fueled that housing boom haven't emerged, and buyers generally have stronger finances than they did a decade ago. Home construction is also ramping up, and with mortgage rates on the rise, there are signs that the supply-demand imbalance will improve through the year, Waller said.

"The recent increase seems to be sustained by the substantive supply and demand issues I have detailed—not by excessive leverage, looser underwriting standards, or financial speculation," he said. "I am hopeful that at least some of the pandemic-specific factors pushing up home prices and rents could begin to ease in the next year or so."