If you read this blog regularly then you are well aware of how inflation and The Federal Reserve’s response to it are impacting the housing market. Most notably, 30-year fixed mortgage rates have spiked from 3.2% to 6.38% over the past six months. While this has led to many buyers being priced out of the market, it has also led to more homeowners opting to stay put and not sell in order to hold on to their historically low interest rates. Interestingly, we are still seeing the demand for all types of housing remain high nationwide. Of course, these buyers are still being met with the persistent inventory challenges.
Recently, Jerome Powell, Chairman of The Federal Reserve said in an effort to cool “a red-hot housing market” to straighten a “big imbalance,” he now believes it will likely take a “difficult housing correction” to fix things. He went on to say: “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 and at a reasonable pace, and that people can afford houses again.”
Where are housing prices heading?
According to Mark Zandi, chief economist at Moody’s Analytics, there are now 210 out of the top 400 housing markets across the country that are “significantly overvalued” – or overvalued by more than 25%. Furthermore, he expects year-over-year home price growth in the U.S. to bottom out from 20% to 0% by this time next year. This slowdown in home sales will likely play out through mid-decade and as a result, could increase home inventory as the volume of sales declines.
The inflation conondrum
In order to slow inflation, consumers have to slow consumption. With this said, buying new or existing housing increases consumption of more tangible hard goods and that creates demand which ultimately drives inflation and pricing. Recently, the Federal Reserve raised its key interest rate by 0.75 percentage points for a third straight meeting to curb high inflation. In other words, the Federal Reserve is intentionally trying to shock the housing market since a key part of the inflationary metric is the cost of housing and cost of living. Essentially, the Federal Reserve is trying to control both.
In closing, many Americans fear another housing crash is on the horizon. Although a price correction is certainly possible to varying degrees depending on the market, the housing market is nowhere close to the housing market crash during the 2008 Great Recession. In particular, new lending regulations resulting from the 2008 housing collapse ensure that this market is nowhere near the market that led to the collapse. Overall, we expect markets such as South Florida to continue attracting transplants relocating here from other states. Nonetheless, it is imperative that you work with a local and knowledgeable real estate agent in this market. At Live South Florida Realty, Inc. we have earned an excellent reputation of providing excellent customer service combined with unparalleled local knowledge. Do you need assistance? Contact one of our team members today! Do you want the South Florida MLS right on your mobile device? Download our free Florida Home Search app today!