Housing is probably going to keep getting more and more expensive, despite the Fed’s efforts to cool the market.
The big picture: The supply of houses for sale plunged to record lows in recent months — and even if you can win the bidding war for one of them, the cost of a mortgage is on the rise.
Why it matters: Housing prices have surged over the last two years as house-bound Americans took advantage of record low mortgage rates.
- That boom has made housing much less affordable for homebuyers and renters alike, with housing emerging as a key source of inflationary pressure bedeviling Americans.
- The price of an existing home jumped from roughly $275,000 at the end of 2019 to $358,000 in December 2021, according to the National Association of Realtors.
Driving the news: The Fed has recently signaled it would lift interest rates to try to clamp down on inflation. Mortgage rates have jumped sharply in response.
- The average 30-year fixed mortgage rates rose from 2.98% in November to 3.55% late last month, per Freddie Mac.
- By itself, such an increase would add roughly $200 to the monthly mortgage payment on the median priced home in the U.S., S&P estimates.
In theory, higher mortgage rates should help cool off the housing market by making housing slightly more expensive and effectively shrinking the universe of potential buyers.
Yes, but: In practice, home prices — like all market prices — are a tango between supply and demand. And right now, there’s hardly any supply of houses for sale.
- There were just 790,000 existing single-family homes available for sale in December, the lowest level on record.
What they’re saying: “We really do see, just, astonishingly low inventory this winter,” said Jeff Tucker, a senior economist at Zillow, told Axios. “The shelves look pretty empty from the perspective of home shoppers.”
The bottom line: For the moment, analysts seem to think the mismatch between throngs of would-be buyers and a piddling number of houses for sale favors higher prices to come.
- “We still think demand will eclipse housing supply,” wrote Goldman Sachs analysts in a recent note. “And we continue to expect year-over-year [home price appreciation] of 10.1% for full-year 2022.”