Federal Reserve Can Help the Housing Market with more than an Interest Rate Cut

By Joel D. Joseph, Economist

The United States has a housing crisis.Young Americans can no longer afford to buy homes or condominiums. The median age of first-time buyers rose to 40 in 2025 from 38 the year before, and is up sharply from 33 just five years ago, according to the National Association of Realtors.

The share of all home purchases that were made by first-time buyers fell to 21% this year, the lowest on records since 1981. Federal Reserve Chairman Jerome Powell said, The real issue with housing is that we have had, and are on track to continue to have, not enough housing.

Powell added, All of the aspects of housing are far more difficult, and where are we going to get the supply? And this is not something the Fed can really fix.

Powell is dead wrong.The Fed has the power to fix the housing market. Congress is unlikely to propose any new legislation that will improve the housing crisis. Only the Federal Reserve has the power to increase our housing supply. In March, 2020, the Federal Reserve announced that it would buy investment grade corporate bonds,and the next month set the amount at up to $250 billion and extended the purchase to junk bonds. With this program, the Federal Reserve established the Secondary Market Corporate Credit Facility (SMCCF) to support credit to employers by providing liquidity to the market for outstanding corporate bonds.

The SMCCF's purchases of corporate bonds created a portfolio that tracked a broad, diversified market index of U.S. corporate bonds, but generally did not invest in home-builders.

The Fed's Corporate Bond Buying

The Federal Reserve has picked corporate bonds that don't make a lot of sense. The top three purchases of corporate bonds are all foreign companies: Toyota, Volkswagen and Mercedes. The Fed also bought American bonds from Apple, AT&T, Verizon and Microsoft. None of these companies really needed the Fed's help.

Apple and Microsoft are two of the biggest corporations on the planet with valuations in the trillions of dollars.In contrast, the home-builders are smaller companies, not trillion-dollar behemoths like Microsoft and Apple. The Fed also bought bonds issued by General Motors, Ford, BMW and CVS. I don't see any evidence that the Federal Reserves' bond purchasing has helped the housing market.

The Fed Can Target Housing Developers

There are eight public companies that manufacture homes in the United States. They are D.R. Horton, Lennar Corporation, the Pulte Group, NVR, Taylor Morrison, KB Home, Meritage Homes Corporation and the Clayton Properties Group. Lennar alone built an impressive 80,000 homes in 2024, bringing in more than $40 billion in revenue. Pulte built 30,000 homes and KB Home built 14,000 homes in 2024. In total, these companies built approximately 200,000 homes in the United States last year. Smaller builders built another 100,000 homes in 2024. The supply of U.S. homes undershot demand by 3.8 million homes in 2024, according to a Realtor.com report.

We need to increase the number of houses built by more than 100,000 per year and a Federal Reserve targeted program can accomplish this goal. Most of these public home-builders have corporate bonds paying about seven percent interest. The Fed can work with these home-builders to build low-income and moderate-income housing by buying newly-issued low-interest corporate bonds paying three or four percent.

In order to participate in this program, home-builders would have to agree to build a certain number of housing units, with a defined number of low-income houses and condominiums. With the Fed's support, these home-builders can increase our housing stock and help bring down the cost of owning a home. Coupled with lower interest rates, the Federal Reserve can make a huge difference.The Fed needs to think outside the box. And this proposal is not very far outside the box since the Fed is already purchasing corpo