The US housing market is potentially on the brink of recession, as mortgage rates near 8%, according to Wells Fargo economists. This situation is largely attributed to the Federal Reserve's aggressive interest-rate hikes since March 2022, a strategy intended to control inflation that is expected to persist until 2024.
The Federal Reserve's policy could result in a decrease in construction and housing activity. The residential sector, which showed signs of improvement in early 2023, is now contracting. Even if mortgage rates drop when the Federal Reserve eases its monetary policy, financing costs might remain high. This could limit new construction and discourage sellers with low mortgage rates from listing their homes.
The average 30-year fixed-rate mortgage has climbed from under 4% to nearly 8%. In the first half of 2023, only 1% of Americans sold their houses. This trend suggests a potential slowdown in the housing market activity.
Various groups have urged Jerome Powell, the Fed's chair, to reconsider the bank's rate-hiking campaign. These groups include the National Association of Realtors, Mortgage Bankers Association, and National Association of Homebuilders. This situation echoes the 1980s when homebuilders from Jackson, MS sent a plea to then-Fed Chair Paul Volcker with the inscription "Help! Help! We Need You. Please Lower Interest Rates."
The current situation underscores a growing concern about the impact of rising interest rates on the housing market. As economists continue to monitor these trends, it remains clear that future decisions by the Federal Reserve will significantly influence the trajectory of the US housing market.
