Back in June 2022, Fed Chair Jerome Powell told reporters that spiked mortgage rates would “reset” the “overheated” pandemic housing market.

“I’d say if you are a homebuyer, somebody or a young person looking to buy a home, you need a bit of a reset,” Powell told reporters last summer. “We need to get back to a place where supply and demand are back together and where inflation is down low again, and mortgage rates are low again.”

Powell later acknowledged in September that “when I say reset, I’m not looking at a particular specific set of data,” while adding, “We probably in the housing market have to go through a correction to get back” to a balanced market, and a “difficult [housing] correction” was already ongoing. In November, he went a step further and said a “housing bubble” had formed during the pandemic and “the housing market will go through the other side of that.”

To some economic onlookers, it sounded like Powell was insinuating that home prices might take a leg down. And for a while, national home prices were on the way down. Between June 2022 and January 2023, U.S. home prices as tracked by the Case-Shiller National Home Price Index fell 5.2% (or down 3% with seasonal adjustment).

That didn’t last long. This spring, that “difficult [housing] correction”—which was sharpest out West and in Texas—lost momentum. And instead of taking a breather, home prices took another jump up.

On June 27, we learned that national house prices as tracked by Case-Shiller went negative on a year-over-year basis (-0.2%) for the first time since 2012. However, it comes as prices are posting a stronger than expected spring run. Indeed, we also learned on June 27 that prices rose 1.3% between March and April (or 0.5% with seasonal adjustment). That marks three straight month-over-month gains and puts the year-to-date home price gains at 2.3%.

That fact that home prices are rising again is something that Powell said last week he's closely watching.

"Housing is certainly very interest [rate] sensitive. It's one of the first places that is either helped by low rates or held back by higher rates, and we certainly saw that over the course of the last year. We now see housing putting in a bottom, and maybe moving up a bit. We're watching that situation carefully. I do think we'll see rents and house prices filtering into housing services inflation [overall housing costs as tracked by CPI], and I don't see them coming up quickly. I see them wandering around at a low level," Powell said.

This spring's house price rebound raises the question: Did Powell accomplish his goal? Is this really a more "balanced" housing market?

Let's say, hypothetically, Powell's goal wasn't to bring down house prices, and instead he wanted to "balance" the housing market by pushing inventory levels back up. After all, if inventory rose enough, it could reduce the number of bidding wars.

Not long after mortgage rates spiked last year, inventory levels did begin to rise across much of the country. However, this spring's demand rebound soaked up those inventory gains, and by May there were only 582,032 active listings for sale on Realtor.com. While that's up 22% from May 2022, it's still down 50.5% from May 2019 when active listings totaled nearly 1.2 million.

Not only are national house prices rising again even as the year-over-year calculation goes negative, but resale inventory is also still very tight. That doesn't sound like much "balance" for buyers.

Why does the housing market remain so stubbornly competitive?

According to Deutsche Bank, the housing market's bounce back this spring is further proof that the housing market is under-built. That shortage was only intensified by the pandemic's remote work boom, which accelerated demand for housing across much of the country.

"The U.S. housing market was simply navigating a mid-cycle crisis [last fall] with higher rates and home prices acting to govern, but not derail a cycle that had started over a decade ago in the wake of the Great Financial Crisis," wrote Deutsche Bank analysts in a paper published last month. "If nothing else, the under-built narrative is likely directionally correct."

The silver lining for the Fed: While the housing market remains competitive, rent growth has slowed down, at least for now. And unlike house prices, rents are directly factored into the consumer price index's inflation calculation.

The other silver lining might be that spiked mortgage rates aren't translating into a homebuilding bust. Powell has suggested it would be best to tame inflation without making the housing shortage worse. Back in November, Powell told reporters that "there's a longer run housing shortage," adding that "it's hard to get zoning and hard to get housing built in sufficient quantities to meet the public's demand."

So Powell might be happy to see that new-home sales and housing starts are rising again. Then again, if residential construction heats up too much, it could add fuel to the strong labor market—which isn't exactly something the Federal Reserve wants right now.