Rising interest rates slow the housing market as
Higher rates make mortgages more expensive and could propel a crisis
“The housing market is slowing down because you’re seeing high rates having an effect. That should have an effect on house prices, maybe even fast enough that prices aren’t necessarily going down but price increases are stabilizing. “We’re seeing lower house prices, sales, lower housing starts. We’re seeing a slowdown,” the Fed Chairman said.
After dismissing last year’s inflation hike as transitory, the Fed has raised interest rates three times so far this year by a combined 150 basis points.
Powell, whose background is in private equity, stressed the need to limit workers’ wage gains, even if current inflation of 8.6% outpaces wage gains of 4.5% at the end of 2021. Employers have struggled to hire and retain workers throughout the pandemic. The central bank’s inflation objective is to slow wage growth. It worries lawmakers on both sides that rate hikes will lead to job cuts and a recession without reducing the high prices driven by other factors.
“I know higher interest rates are painful, but it’s the tool we have to moderate demand and restore the balance between supply and demand,” Powell said of the
Fiscal conservatives have also pressured Powell over large monetary and bipartisan fiscal injections into the economy during the pandemic.
“We injected all this money into the economy,” Kennedy said during the
End of the real estate frenzy
Rate increases from
It was one of many dichotomies during the pandemic, with property investors and wealthy property owners building even more equity and profits while restaurants, bars and other low-wage service workers lost their jobs and their salary.
Now the real estate market is cooling with rising mortgage costs with higher rates from the
“The average monthly mortgage payment has increased by more than 40% since the end of last year, due to rising mortgage rates and rising house prices. This affordability shock is pushing many potential buyers out of the market as it has become increasingly difficult to qualify for a mortgage. said
Higher mortgage costs combine with continued large rent increases for apartments and rental homes, impacting many
Land sales — especially in growth markets — are slowing, with builders and developers holding back purchases. Banks, securities firms, builders and real estate developers are also starting to lay off workers as the housing market slows.
The slowdown in sales is also reflected in more homes staying on the market longer. The Florida Realtors group reports a 31.5% increase in inventories of homes for sale compared to last May.
“We actually started to see a change towards the end of the first week of May,” said
She attributed the slowdown in prices to higher interest rates.
“But if a house is priced right, it will sell,” Neuhofer said, adding that if the market isn’t “boiling, it’s simmering.”
High end sales down
Luxury home sales are also slowing with higher and falling interest rates
Real estate firm Redfin reports that sales of luxury homes fell 17.8% between February and
This includes a 27% drop in luxury home sales in
“The pool of people qualified to buy luxury properties is shrinking because the stock market is down and mortgage rates are rising,” said
The median price of a luxury home is
Recession in sight?
While Powell and
The combination could lead to a slowing economy but persistently high prices – the opposite of a soft landing.
A survey by
Central bank policy to delay wage growth won’t help consumers worried about gasoline prices
It also includes double-digit increases in apartment rents and a dearth of affordable housing options in expensive coastal cities, rural areas and growing markets. The largest rent 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 that rate increases make it more likely that companies will lay people off and cut hours to reduce labor costs. The increases rate hikes are also making it more expensive for families to do things like borrow money for a home – and so far this year the cost of a mortgage has already doubled,” Warren told Powell during the interview. the
Warren worries that the Fed is “tipping this economy into a recession.”