Housing Market: Are Fed Rate Hikes Lowering Home Prices?

After announcing another 0.75% hike to the benchmark interest rate on Wednesday amid the Federal Reserve’s fight against inflation, Fed Chairman Jerome Powell said the US housing market is likely to experience a “difficult. correction “before reaching a” better balance “.

What does it mean?

Well, we are already seeing it. House price increases, in some regions more than others, are stabilizing if they don’t start to decline.

“The deceleration in house prices we are seeing should help bring prices more closely in line with rents and other real estate market fundamentals,” Powell told reporters Wednesday. “And that’s a good thing.”

But that doesn’t mean it won’t be painful.

“In the long run, what we need is for supply and demand to better align so that house prices rise at a reasonable level, at a reasonable pace and that people can afford houses again,” Powell said. “So probably, in the real estate market, we will have to undergo a correction to get back to that place.”

Powell added: “From a business cycle perspective, this difficult correction should bring the housing market back into better balance.”

What does a housing ‘correction’ mean for the West?

Powell’s language on Wednesday provided more insight into what Powell meant in June when he said the housing market needed a “reset.”

There has been speculation that this meant the Fed’s goal was to moderate buyer demand to give inventories a boost or if the Fed actually wanted house prices to fall, Fortune reported Thursday, but in mind From some real estate analysts, Powell’s language this week reinforces the interpretation that the Fed’s intent is to lower house prices.

What they are saying: “Clearly the change in the Fed’s choice of words from ‘housing needs a reset’ in June to ‘housing repair today actually means a correction’ indicates that they are doing quite well with falling home prices, sales. of cooling homes and construction retreating significantly to achieve their mission, “Rick Palacios Jr., head of research at John Burns Real Estate Consulting, told Fortune.

The big picture: The COVID-19 pandemic sent the nation into a real estate frenzy, driving home prices to unprecedented levels as mortgage rates sometimes hovered below 3%, fueling demand not only for sales, but also refinancing.

Now, as mortgage rates have surpassed 6%, the party is over. Low mortgage rates no longer hide the impact these record house prices have on affordability.

Now, the United States is grappling with an accessibility crisis it cannot avoid. Enough potential homebuyers have reached their limit and retreated rapidly over the past few months which has had a dramatic impact on demand.

House prices in Utah, Idaho: The impact was rapid and dramatic, especially in the West. Local real estate markets including Boise, Idaho and yes, Salt Lake City, which have been among the cities to see home prices skyrocket amid the pandemic frenzy, are now also some of the first to see prices drop as the frenzy disappears.

From May to August, home values ​​in the Boise metropolitan area fell by 5.26% and those in Salt Lake City fell by more than 7%, according to Fortune’s analysis of Zillow’s Home Value Index.

The “chilling effect” in Utah

On Thursday, the Salt Lake Board of Realtors took a closer look at the impact rising mortgage rates has had on home sales and home prices in Salt Lake County.

House prices in Salt Lake County: The average single-family home price in August was $ 601,000. Now, it’s still up more than 10% year-over-year, from $ 545,000 in August last year. But it’s also a 7.5% drop from when they peaked at $ 650,000 in May, according to the Salt Lake Board of Realtors.

Let’s put it in a further perspective. Single-family home prices in Salt Lake County have risen 63% since the start of the pandemic, from March 2020 to May 2022.

This is an increase of $ 250,000 over two years, compared to $ 400,000 in March 2020.

Now, those days of rapid price acceleration are over.

Chilling effect: “The Federal Reserve’s aggressive rate hikes appear to have little effect on inflation, but a chilling effect on the housing market,” said Steve Perry, chairman of the Salt Lake Board of Realtors, in a prepared statement. “We are selling around 400 units. in fewer houses per month than the ten-year average “.

Home inventory on UtahRealEstate.com surpassed 10,000 homes, a 150% increase from the meager, 4,000 active listings this time last year, when buyer competition was high and inventory was low. Now, according to the board, the inventory is reaching a more balanced level.

“The bidding wars are over,” Perry said. “Bids above asking price and valuation waiver have ended. Homebuyers have more choices and options when buying a home. ”

Even homes now take a lot longer to sell. In August, the average number of days a home was on the market in Salt Lake County was 22 days, according to the council. It is three times longer than a year ago, when the median days on the market were just over seven.

Leave a Reply

%d bloggers like this: