The Housing Market Is Stagnating While The Feds Tries To Manage Inflation
The housing market is feeling the effects of the Federal Reserve’s decision to raise interest rates to fight inflation.
According to Markets Insider, mortgage rates have skyrocketed following the Fed’s choice to raise the federal short-term interest rate from near 0% to 5.5%. Because of this ripple effect, homeowners are unwilling to sell their homes. With prospective buyers facing an increased cost burden, many would-be buyers are instead choosing to rent, which has pushed the national average price of a home up to $420,846 as recently as August.
Insider notes that the only people currently selling homes are selling them out of necessity due to life events like marriage or finding a new job, which Redfin CEO Glenn Kelman calls rock bottom.
“The only people who are moving are the ones who absolutely have to,” Kelman added. “I wouldn’t call that a Goldilocks scenario; I would call that rock bottom. But that’s where we are right now, and the only relief is that it can’t go much lower. Kelman concludes his warning by saying that the slump will be here “a long, long time.”
The hikes were made to combat skyrocketing prices, and over the past year and seven months, the average monthly mortgage has risen from $1,212 in January 2022 to $2,246 in August 2023. Tom Hainlin, a national investment strategist at U.S. Bank, says to bear in mind that the housing market is an indicator of where the American economy is, saying:
“The formation of households is one of the main drivers of economic growth in the U.S.,” Hainlin said. “It has a large spillover effect on the economy, including materials that go into building or remodeling, and furnishings for homes.”
According to a February 2023 NBC News article, in early 2022, some homes in Atlanta received strong offers. Courtney Phillips, a realtor for EXP Realty, told NBC News those offers had slowed to a crawl by summer:
“We were getting one, two offers towards the summer, And then it just kind of slowed,” Phillips said, “where you’re on the market a couple of weeks, and you get one really strong offer at list price.” Eventually, home sellers started dropping their prices to try and entice people to buy. No relief is coming soon, as Fed Chairman Jerome Powell did not mince words, telling NBC News at the time, “We expect ongoing hikes will be appropriate,” Powell added, “I don’t see us cutting rates this year.”
RELATED CONTENT: How To Maneuver Home-Buying Myths In Today’s Pricey Housing Market