Fed interest rate hikes set to slow worker wage gains, chill housing markets – InsuranceNewsNet

Rising interest rates slow the housing market as Federal Reserve focuses on stunting workers’ wage gains in the fight against high inflation.

Higher rates make mortgages more expensive and could propel a crisis WE the economy slipped into recession after first-quarter GDP growth was -1.4%. They also come as tenants of apartments and rental homes face steep rent increases as well as continued inflation in other spending areas such as groceries and gas.

“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. Jerome Powell at a Senate Banking Committee hearing Wednesday, June 27.

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 WE economy facing high inflation, potential recession and central bank pressure against wage gains.

The Fed hopes to bring inflation back into the 2% range from its current rate of 8.6% – the highest since 1981.

Fiscal conservatives have also pressured Powell over large monetary and bipartisan fiscal injections into the economy during the pandemic. WE Sen. John KennedyR-Louisianasaid the federal government spent an additional sum 7 trillion dollars on the relief of the pandemic and the balance sheet of assets and liabilities of the Fed went from $1.5 trillion at 9 trillion dollarsKennedy said.

“We injected all this money into the economy,” Kennedy said during the June 22 audience.

End of the real estate frenzy

Rate increases from WE central bank have sent mortgage interest rates from 3% range up to 6%. That’s chilling a housing market that posted robust and at times record levels of sales and price increases during the early stages of the coronavirus pandemic.

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 WE central bank

“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 Ali Wolfchief economist for Californiareal estate search company based in Zonda.

Higher mortgage costs combine with continued large rent increases for apartments and rental homes, impacting many WE households.

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 California Association of Realtors reported June 16 May home sales were down 9.8% from April and 15.2% from a year ago. The property group said home sales volumes were at their lowest since June 2020.

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 Jennifer Calendabroker owner of Calenda Real Estate Group in Punta Gorda. “We’ve gone from a frenzy to a bit more normal pace here.”

Sharon Neuhoferpresident of real estate agents Punta Gorda–Port Charlotte–North Harbor–DeSotosaid prices “have certainly stabilized, but it’s still a seller’s market.”

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 WE stock markets wreak havoc on wealthy buyers.

Real estate firm Redfin reports that sales of luxury homes fell 17.8% between February and April 2022 compared to a year ago. These are the 5% most expensive homes in a given real estate market.

This includes a 27% drop in luxury home sales in Phoenixa decrease of 33% Austina 24% slowdown in sales in Portland. New York City was the only major WE real estate market to see its luxury sales progress (30%), according to Seattlebased on Redfin.

“The pool of people qualified to buy luxury properties is shrinking because the stock market is down and mortgage rates are rising,” said Elena Flecka Redfin real estate agent in West Palm Beach, Florida. “The good news for buyers is that the market is leveling out and the competition is easing. Of course, that doesn’t help the dozens of Americans whose price has been completely overshot.”

The median price of a luxury home is $1.15 million nationwide, according to Redfin. These median prices include $5.5 million in San Francisco and $4 million in New York, $2.6 million in Miami, $1 million in Baltimore and $656,000 in Cleveland.

Recession in sight?

While Powell and WE treasury secretary Janet Yellen hope for a soft landing in the economy, the current situation and monetary trajectory could mean that consumers are potentially facing high interest rates affecting housing, car loans and other financing , combined with continued high inflation (including record high gasoline prices and high grocery store prices).

The combination could lead to a slowing economy but persistently high prices – the opposite of a soft landing.

A survey by California-based Liberty Financial Network found 50% of WE consumers would have to use credit cards or borrow money from family and friends if they faced an unexpected expense of $1,000 or more.

Central bank policy to delay wage growth won’t help consumers worried about gasoline prices $5 per gallon or more and double-digit price increases for groceries and other basics.

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 Florida markets, according to CoStar Group and his Apartments.com affiliate.

“More people are living paycheck to paycheck now,” Calenda said.

An analysis by Trans Union found apartment rents rose 14% between 2020 and 2021 but median renter incomes rose 6%. The median income of an apartment renter is $37,232, according to the credit reporting agency. These income brackets feel the brunt of inflation the most and could also be the hardest hit by higher interest rates.

The median income of apartment renters in 2020 before the COVID pandemic was $35,000according Trans Union.

WE Sen. Elizabeth WarrenD-Massachusettsfears that these households will bear the brunt of interest rate hikes while other drivers of inflation such as industrial consolidations and the impact of Russia war in Ukraine and WE the sanctions will persist.

“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 June 22 hearing.

Warren worries that the Fed is “tipping this economy into a recession.”