The housing market crisis could revive inflation
Inflation has improved significantly since the Federal Reserve moved to aggressively raise interest rates in 2022, but the housing affordability crisis has not gone away and may even increases inflationary pressure.
Housing supply remains tight, and although mortgage rates are well below their peak last year, they have increased in recent weeks. According to Daily mortgage newsThe latest 30-year fixed interest rate was at 6.68%, up 0.53 percentage points from a month ago.
That’s because the start of the Fed’s rate-cutting cycle has failed to produce the sustained decline in borrowing costs that potential homebuyers have long hoped for. In fact, Mortgage interest rates may stay about their position going forward as strong economic data and caution from Fed officials reduce the prospect of future easing.
Mortgage giant Freddie Mac repeat that point in Latest housing market report on Friday, said it sees mortgage rates falling “very slowly over time, with the potential for volatility as economic news could surprise the market.”
Such incremental improvement will not bring much momentum to the housing market as inventory remains limited and homebuyers are on the sidelines waiting for mortgage rates to fall further, the report added.
There have been some signs lock effect is weakening a bit as interest rates fall, putting more supply in the market, but that’s not enough to satisfy high demand — meaning home prices will continue to rise, Freddie Mac predicts.
To be sure, the outlook for the overall economy looks positive, as the Fed’s half-point interest rate cut should boost consumer spending and credit.
The report warns: “However, while inflationary pressure is gradually decreasing, inflation still has potential downside risks.” “One area where inflation could rebound is housing inflation in an environment where the fundamental imbalance between supply and demand remains a major challenge for the housing market.”
Any resurgence in inflation could further dampen expectations for more relief from the Fed. The most recent consumer price data shows Inflation was higher than expected last monthmaking large-scale interest rate cuts unlikely.
And since housing costs make up a large portion of the range of costs included in official inflation indices, further upward pressure on that target could lead to outsized impacts on the overall data. .
Continued strength in the economy and labor market could also make prices less volatile elsewhere, if housing inflation picks up again. Some analysts even suggest that the United States will not only avoid a recession but also avoid a “soft landing,” and instead the economy will weather it.no landing.”
As the housing crisis drags on, Americans are feeling trapped. More than a third (36%) of homeowners say they feel trapped in their homes and unable to move, according to new research. study by Edelman Financial Tools. This number increases to nearly 50% for homeowners under 50, who are primarily Generation Z and Millennials.
Even The luxury housing market is congestedAccording to global real estate consultant Knight Frank, the company released its fourth quarter 2024 US market report on Thursday.
“Despite a higher proportion of cash buyers, rising borrowing costs are also weighing on activity in luxury markets.” it said. “Primary buyers tend to have assets tied to other asset classes, many of which have been impacted by higher interest rates. That adds to the uncertainty, which has become more complicated after the November election.”
