As the Fed combats inflation by increasing rates to slow down the economy, there are going to be many sectors that feel the pain. The housing market is one area where the consequences will be felt since mortgage rates will make consumers hesitant to enter the market.slow down the housing marketThe country was already dealing with a housing shortage before the pandemic started. Then, when the pandemic hit, many people were working from home and had the flexibility to relocate.
Soaring interest rates are making mortgage payments more expensive. In September 2022, the average rate of 6.29% on a 30-year fixed mortgage meant an additional $600 was added to the monthly cost of being a homeowner on top of the increased costs of everything else. Median home prices dropped 0.98% in August, according to Black Knight, a real estate software company. This is only slightly better than July’s decline of 1.05% and means that July and August had the largest monthly decline in real estate prices in 13 years.
There’s a difference between the real estate market crashing and home sales slowing down. Federal Reserve Chair Jerome Powell brought up last month that the real estate market will cool down and likely go through a correction right after the announcement of the 0.75% rate hike. Economists from Fannie Mae believe that the real estate market will tip the economy into a recession in 2023.
Realtor.com shows an annual increase of 26.9% in the national inventory of active listings. This means there are still options on the market for those looking to buy houses.Deciding how to invest in real estate can be tricky when you see rates rising and hear a constant droning on about slowing sales. Until the housing market cools off more, most of us will continue investing in the stock market while we work to save enough money for a down payment.
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