From the NAR:
The U.S. Federal Reserve has completely upended the housing market, taking it from turbocharged to rapid deceleration.
The effects of the Fed’s rate hikes in its war against inflation are being felt in just about every crevice of the economy, as recession fears are quickly mounting. The stock market keeps falling, companies are scaling back on hiring or letting workers go, and mortgage interest rates are rising even more than anticipated, causing homebuyers to slam on the brakes.
Home prices in many markets have even begun falling from their peaks. Now, the question is how far they will drop—and what fissures will be opening elsewhere in the economy to propel these changes.
The red-hot housing market will likely “have to go through a correction” as “housing prices were going up at an unsustainably fast level,” Jerome Powell, chair of the Federal Reserve, said in a press conference last week.
While economists debate whether the nation is already in a recession or heading toward a downturn, it’s clear that the housing market has shifted dramatically.
“The Fed is determined to cool inflation, and they’re willing to throw housing under the bus to do so,” says Devyn Bachman, senior vice president of research at John Burns Real Estate Consulting. “When you raise [mortgage] rates to the point they’re at today, it breaks the back of housing.”
A year ago, homes were selling in mere hours as throngs of buyers tried to outbid one another by tens, if not hundreds, of thousands of dollars over the asking price. However, when the Fed began raising its rates, mortgage interest rates also went up, making it significantly more expensive for buyers to afford housing.
So home prices have begun coming down from the summer, and many would-be buyers aren’t purchasing homes. Sellers, realizing they missed the peak, are holding off on listing their homes. Many who need to sell are cutting prices.
“The deceleration in housing prices that we’re seeing should help bring … prices more closely in line with rents and other housing market fundamentals—and that’s a good thing,” Powell said last week. “For the longer term, what we need is supply and demand to get better aligned so that housing prices go up at a reasonable level, at a reasonable pace, and that people can afford houses again.”
Some fear the Fed’s course of action could be too much for the housing market to withstand. Prices have been falling from a peak in June. And while prices are still up from a year ago, many real estate experts predict they’re about to fall much further.