It’s no secret that the housing market is a major force in the American economy. It is the goose laying golden eggs, and is the Fed trying to kill it? I don’t think it’s intentional, but the housing market may be collateral damage in the Fed’s Quixotian quest to bring inflation down to 2%. Here’s the problem.
30 year mortgage interest rates are at 7.375% as of 9/25/23. They haven’t been this high in the past 20 years! Last year when the rates were in the 5’s and moving into the 6’s I believed that people would become accustomed to the higher rates over the winter, and by the time spring came around rates in the 6’s would be acceptable to the new crop of home buyers. It all panned out, and the spring market did it’s thing in part because we had such limited inventory. Few buyers in the market are not an issue when there are few houses available. That also meant that a lot less people were working on getting houses ready for sale: contractors, suppliers, distributors, and of course Realtors at the finish line like myself, title and escrow companies, mortgage brokers and lenders, property inspectors, even city building departments all felt the squeeze of a lower business volume.
Last week the Fed held it’s regular meeting and while they didn’t raise rates, they did say they might again before the end of the year. They also talked about keeping rates ‘higher for longer’. The market had anticipated four rates cuts next year. Or should I say dreamed about four cuts? The Fed dashed those dreams signaling the higher probability of only two cuts next year.
Inflation has been pretty bad. There’s no question about it, and everyone has felt it’s effects. At some point though, people in power are going to be faced with the question of whether or not the cure is worse than the disease? Do we really need to be at 2% inflation, or is an inflation rate of 2-3% acceptable if we can avoid a stagnant economy and breathe some life into the housing market, which will positively ripple through the rest of the economy?
People are suffering from inflation, and high gas prices are only adding to the inflationary pressure throughout the supply chain. The Fed is hoping to see unemployment numbers rise, which will also be painful. Higher interest rates are hurting everyone from Main Street to Wall Street. At this point the goose isn’t cooked, but the fryer is certainly warmed up and those golden eggs are coming out fewer and further between.