The Fed Is Crushing The Housing Market, Not Inflation

Last week, the Federal Reserve approved a fourth straight 75-basis point hike in interest rates (the sixth overall this year) and hinted at a potential shift in its monetary policy strategy to combat inflation.

Rising interest rates in the U.S. are doing more damage to the housing markets than it’s doing to control inflation.

Here’s a good example: According to Realtor.com, due to overpriced homes and rising interest rates, the average home buyer in October spent 77% more for their loan than they would have the previous year.
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That amounts to an extra $1,117 per month with a $425,000 national median asking price and a 10% down payment.

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In January 2022, the top-line inflation rate was 7.5%, while mortgage rates were 3.29%.

Top-line inflation made highs of 9.1% in June, while mortgage rates climbed to 5.7% over the same month.

The latest data for top-line inflation in September shows it slightly cooling, at 8.2% — but mortgage rates continued their hike, coming in at 7.29%, according to Mortgage News Daily.

The rise in borrowing costs has made purchases less affordable for consumers, which is hurting residential construction, sales activity and jeopardizing economic growth: Just what the Fed is aiming at.

After peaking during the first few years of the Covid-19 pandemic, when low borrowing costs and stimulus checks allowed an average of 14% more Americans to relocate, home sales and housing starts have fallen.

At a seasonally adjusted annual pace of 4.71 million in September, existing-home sales fell for the eighth consecutive month.

Sales decreased 23.8% from the prior year and 1.5% from August.
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