Higher interest rates are slowing the housing market as the
Higher rates make mortgages more expensive and could propel a teetering
“The housing market is slowing down because you are seeing high rates have an effect. That should have an effect on housing prices, perhaps even fairly quickly so that prices will not necessarily come down but price increases will flatten out. We are seeing lower home sales, lower starts. We are seeing a slowing,” said Fed Chairman
After dismissing last year’s inflation rise as transitory, the Fed has raised interest rates three time so far this year by a combined 150 basis points.
Powell, whose background is in private equity, has stressed the need to constrain workers wage gains even though inflation’s current 8.6% is outpacing wage gains came in at 4.5% to end 2021. Employers have struggled to hire and retain workers throughout the pandemic. The central bank’s inflation focus is on slowing wage growth. That worries lawmakers from both parties that the rate hikes will lead to job cuts and a recession without cutting into high prices driven by other factors.
“I know higher interest rates are painful but that is the tool we have to moderate demand and get demand and supply back in balance” said Powell of the
Fiscal conservatives also pressed Powell on the large monetary and bipartisan fiscal infusions into the economy during the pandemic.
“We’ve injected all of this money into the economy,” Kennedy said during the
End of the housing frenzy
Rate hikes from the
It was one of the many dichotomies during the pandemic with real estate investors and wealthy property owners building even more equity and profits while lower-wage restaurant, bar and other service workers lost jobs and pay.
Now, the real estate market is cooling with mortgage costs up with higher rates from the
“The average monthly mortgage payment is up over 40% since the end of last year driven by higher mortgage rates and higher home prices. This affordability shock is pushing many potential homebuyers out of the market as qualifying for a mortgage has become increasingly difficult,” said
Higher mortgage costs are combining with continued big increases in rents for apartments and rental homes impacting many
Land sales — especially in growth markets — are slowing with builders and developers putting the brakes on purchases. Banks, title companies, builders and real estate developers are also starting to lay off workers as the housing market slows.
Slower sales also result in more homes staying on the market longer. The Florida Realtors group reports a 31.5% increase in homes for sale inventories compared to last May.
“We actually started seeing a shift about the end of the first week of May,” said
She attributed the softening in prices to the higher interest rates.
“But if a home is priced right, it will sell,” Neuhofer said, adding that if the market is not “boiling hot, it is simmering.”
High-end sales down
Luxury home sales are also slowing with higher interest rates and down
Real estate firm Redfin reports luxury home sales were down 17.8% between February and
That includes a 27% drop in luxury home sales in
“The pool of people qualified to purchase luxury properties is shrinking because the stock market is falling and mortgage rates are rising,” said
The median price for a luxury home stands at
While Powell and
The combination could result in a slower economy but persistently high prices — the opposite of a soft landing.
A survey by
A central bank policy of stunting wage growth won’t help those consumers concerned about gasoline prices of
That also includes double-digit increases in apartment rents and a shortage of affordable housing options in expensive coastal cities, rural areas and growth markets. The biggest rental increases are in
“More people are living paycheck to paycheck now,” Calenda said.
An analysis by
The median income of apartment renters in 2020 before the COVID pandemic was
“The reason I raise this and the reason I’m so concerned about this is rate increases make it more likely that companies will fire people and slash hours to shrink wage costs. Rate increases also make it more expensive for families to do things like borrow money for a house — and so far this year, the cost of a mortgage has already doubled,” Warren told Powell during the
Warren worries the Fed could “tip this economy into a recession.”