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Can Fed interest rate hikes cool the housing market?

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Gary Nelson is beginning to see signs of a chilling housing market in Flagstaff, Arizona.

The president of Arizona Real Estate Agent said the “double pain” of rising home prices and rising mortgage rates is a welcome change after two years of fierce bidding wars and monster growth.

“We will welcome a kind of plateau of activity,” Nelson said. “Maybe things will be a little slower. I expect that to be what we are seeing.”

The Federal Reserve is expected to announce the sharpest rate hike in more than 20 years on Wednesday. Highest inflation in 40 years Calm the radical housing market during the pandemic era.

The Fed’s plan to raise interest rates and lower its vast balance sheet has already pushed up fixed-rate mortgages for 30 years. Average 5% or more, much higher 2.98% from a year ago. High-priced mortgages show signs that the market is chilling, even though the market is mostly hot.

Near the end of April, mortgage purchase applications fell 17% year-on-year. according to The Mortgage Bankers Association, an industry group. Selling prices have fallen in about 14% of homes in the last four weeks, up from 11% of homes that fell in March. According to Redfin data. Wells Fargo has fired a mortgage employee amid a downturn in the mortgage business.

Rents are rising everywhere. Find out how much the price is going up in your area.

Existing home sales fell 2.7% in March, the second straight month of decline. according to National Association of Real Estate Agents. And that change is happening all over the country. March sales According to the group, it was in the Midwest (4.5%), South (3%), and Northeast (2.9%), but was stable in the West.

Taylormer, Deputy Chief Economist at Redfin, said: “This is one of the earliest signs that the market is changing.”

A mortgage rate jump from 3.5% to 5.5%, adding hundreds of dollars to your monthly home payments, narrowing your options. Of a house where people can afford.

Policy makers are particularly concerned about housing prices because of their ability to drive inflation across the economy. For example, shelters occupy about one-third of the baskets of goods and services used to measure the consumer price index. If housing costs don’t slow down quickly, it will be more difficult Because overall inflation drops to more normal levels.

Over the last two years, the combination of low interest rates, stimulating support from Congress, and the flexibility of people to choose where to live and work has been boosted. Demand, transmission of a handful of homes available House prices are soaring. The average selling price of existing single-family homes in March rose 15.2% year-on-year. according to NAR.

Realtors, buyers and housing professionals have noticed a bit of a chill, but they say the market is still upset. For example, a seller may receive 10 offers instead of 20. But experts say there is still a long way to go before the housing market returns to normal.

Mortgage rates have reached 5%, creating new economic uncertainty

Becky Enrico-Crum, President of Boise Regional Realtors, At Idaho, we work seven days a week to meet demand.And she is not Builders can’t keep up, so I’m hoping to slow down soon. If no additional homes are listed for sale in the Boise region, home supply will be cut off in about three weeks.

“People said,’How high can this be, is it a bubble? Will it crash?” Enrico Clam said. “We really don’t have it because it’s just returning to simple supply and demand.”

Some home prices are seen in the Hudson Valley of New York Fastest growth in the country As wealthy households relocate from New York City and scoop up some of the available homes. Ryan Basten, a broker associate in Ulster County, New York, said he hasn’t seen a dip, especially as new transplants bring money to spend money.

“In the last two months, interest rates have risen from 3.5% to 5.5%. This is a dramatic rise and I don’t think it’s affecting competition at all,” Basten said. increase.

“When it becomes 6, 7, 8 [percent]Then people might kneel to it, but I haven’t seen it yet, “Basten added.

But the shift on the other side of the country may start to tell another story. In California, home tours for sellers were down 21% by the end of March compared to the first week of 2022, according to home tour technology company ShowingTime. This is in contrast to the same period last year when touring activity in California increased by more than 76%.

In Los Angeles and Orange County, the number of homebuyers applying for mortgages fell 18% in February compared to the previous year. According to a Redfin survey. In San Francisco and San Diego, the decline was 13%. That was before the Fed enacted its first rate hike this year.

flat The tools are limited as the Fed seeks to solve the housing market. Rate hikes cannot build a house. Zoning rules and construction costs, boosted by supply chain problems and labor shortages, It is more difficult for builders to meet demand.

Some federal officials wanted a larger March rate hike, despite uncertainty

However, the Fed may have more control over inflation in the housing market than any other part of the economy. Russia’s invasion of Ukraine threatens to keep energy prices high for some time. An ongoing coronavirus-related shutdown at a manufacturing hub in China A new wave of supply chain shortages It can also continue to raise prices longer than expected.

Federal Reserve Chair Jerome H. Powell is expected to talk more about uncertainty and whether it can thwart efforts to curb inflation at the end of Wednesday’s two-day policy meeting. ing.

In recent weeks, several policy makers have talked about rising housing costs as a top priority for reducing the burden on families.

“As housing costs continue to rise, housing can become a larger proportion of households than ever before,” said Federal Reserve Governor Christopher J. Waller. Said In a speech in March. “I will take a closer look at real estate to determine the proper stance on monetary policy.”

Waller sold his home in St. Louis to a full cash buyer without inspection, and said last month, “I’m trying to buy a home here in Washington, and the market is crazy.”

Housing costs are soaring in some countries, and high interest rates may take a long time to relieve pain.

Redfin data Revealed a prominent example of tamper. There, homebuyers need to earn $ 67,353 a year to pay $ 1,684, a typical monthly mortgage payment in a metropolitan area. According to Redfin, this is an increase of almost 48% year-on-year, the largest increase in any of the major metropolitan areas in the United States.

In nearby St. Petersburg, Bob Jenkins is captured in the middle. He and his wife, Diane, bought a three-bedroom, two-bathroom home for $ 54,000 almost 44 years ago and had never seriously considered moving. But lately, they’ve been hit by Zillow’s latest information on soaring home values, which amount to about $ 835,000. Bob Jenkins described it as “sitting on this pile of cash.”

they I thought about selling and renting a house I wanted to be in a spacious apartment and not have to pay much more than my monthly mortgage, insurance and property tax charges of $ 1,900. but, Average rent In area climbing so much During the pandemic, they couldn’t find anything in that price range.

“In a sense, we feel we should cash in,” said Bob Jenkins. “In other words, say,’Where are you going?'”

Kathy Orton contributed to this report.

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