The Housing Market’s Affordability Crisis Persists
Despite the Federal Reserve’s aggressive rate hikes in 2022, which have improved inflation dramatically, the housing market’s affordability crisis remains a pressing concern. In fact, it may even renew inflationary pressure.
Mortgage Rates Climb Again
According to Mortgage News Daily, the latest 30-year fixed rate was at 6.68%, up by 0.53 percentage point from a month ago. This increase comes as a disappointment to prospective homebuyers who had hoped for a sustained drop in borrowing costs following the start of the Fed’s rate-cutting cycle.
A Gradual Decline in Mortgage Rates Expected
Mortgage giant Freddie Mac predicts that mortgage rates will slip “very gradually over time, with potential volatility as economic news may surprise the market.” However, this incremental improvement is unlikely to provide much of a boost to the housing market, as inventory stays constrained and homebuyers sit on the sidelines waiting for mortgage rates to drop further.
The Lock-In Effect Begins to Wane
There are signs that the lock-in effect, where homeowners are reluctant to sell their homes due to low interest rates, is starting to wane. As rates drop, more supply is being added to the market, but it’s still not enough to meet high demand. As a result, home prices are expected to continue rising.
Inflationary Pressures Remain a Concern
While the overall economy looks positive, with the Fed’s half-point rate cut expected to boost consumer spending and credit, there are still concerns about inflationary pressures. The housing market’s fundamental mismatch of supply and demand remains a major challenge, and any re-acceleration in inflation could further diminish expectations for more relief from the Fed.
The Economy Powers Through
Some analysts believe that the U.S. will not only avoid a recession but also a “soft landing” slowdown, with the economy instead powering through to “no landing.” However, this means that there may be less wiggle room for prices elsewhere, particularly if housing inflation rebounds.
The Human Cost of the Housing Crisis
As the housing crisis drags on, Americans are feeling trapped. Over a third of homeowners report feeling stuck in their house and unable to move, with this number rising to nearly 50% for homeowners under 50. Even the high end of the housing market is feeling jammed, with elevated borrowing costs weighing on activity in luxury markets.
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