For over a year, we have watched this housing market run wild. Now, the historically low mortgage rates are over, making a drastic turn upward, deterring potential buyers while putting an end to a flood of refinances. You would think that the housing cool down would be all good… however this cooldown is only going to lead to more dysfunction.
Last week, the FED raised interest rates another .75%, or 75 bps. This already has consumers cutting back on purchasing. The bright side? While the market is only showing signs of cooling, it’s a good idea for people who were considering buying a home to be patient. The FED and the white house have made inflation their top priority. FED chairman Jerome Powell stated, “If housing market activity in the summer of 2022 is a casualty along the way, so be it.”
Just a year ago, homeowners were refinancing into the lowest rates in history, but these days are long gone. Allison Schrager, expert economist had some thoughts on the matter. “The Fed has ended quantitative easing and is raising rates. But what really matters is the 10-year bond yield, because that determines mortgage rates. And like mortgage rates, the 10-year bond yield has been rising recently.” However, she also added that we are unlikely to return to the high rates of the 1980’s. If you do not think that buying right now is the best thing for you, unfortunately the rental market is not going to help you at all either. Would-be buyers are pushing to renting, which is pushing rent demand, and therefore rent prices, much higher.
Ultimately, the only way the FED can consistently dampen price increases without cooperation from the physical world, without the addition of more houses, is to spur a deep enough downturn to fundamentally alter people’s standard of living, at least for the short term…