In the last week of July, the Federal Reserve raised the federal funds rate 25 basis points, to 5.25 to 5.5%.
With mortgage rates currently hovering around 6%, housing data analyst Logan Mohtashami commented via HousingWire, “I am assuming that the Fed believed when mortgage rates stabilized that inventory channels would look normal, but they forgot that educated working people don’t sell their homes to the homeless. The majority sell to buy another one, so this concept I am hoping is finally hitting home with them.”
In its July statement through the Federal Open Market Committee, the Fed stated that its July actions were in support of a goal of returning inflation to a 2% objective. The statement included, “The Committee remains highly attentive to inflation risks,” and “In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”
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The June 2023 inflation rate was 3%, a decrease from 9.1% in June 2022, but still above 2%. However the shelter (housing) costs accounted for 70% of the increase in the Consumer Price Index (CPI) last month. Shelter costs were the largest contributor to the 0.2% increase in the CPI.
Sarah Marx writes in HousingWire: “Initially, higher rates did cool housing demand. But because rates had been pushed so low by the Fed during the pandemic and then increased so quickly, the Federal Reserve’s rate increases not only reduced housing demand—as intended—but also severely limited supply by locking homeowners into homes they would have otherwise listed for sale. Few Americans can or want to move when there’s such limited inventory, home prices remain near record highs, and mortgage rates are touching 7%.”
The next actions of the Fed, and their impact on mortgage rates, remain uncertain. Responding to questions at a July 26 press conference, Federal Reserve Chair Jerome Powell commented, “We’re going to be going meeting by meeting … we haven’t made any decisions about any future meetings, including the pace at which we’d consider hiking.”
For more from housing analysts and mortgage lenders, see HousingWire’s report.
Source: lbmjournal.com