Housing Costs
Higher mortgage rates are compounding record home prices, and recent data show it’s already been slowing demand in hotspots.
In essence, that’s what Fed policymakers are aiming for: a cooling of the housing market. Fed Chair Jerome Powell said Wednesday that people looking to buy a home “need a bit of a reset.”
It’ll take time, but it’s potentially good news for dog trainer Charlie King, 22, who was looking to buy a home about a month ago with their partner in northern Kentucky, part of the greater Cincinnati area. Together, they got approved for a $200,000 loan and were offered a 5% mortgage rate. They found themselves woefully outbid on every property. King decided to give up.
“I would like to find a home so I can start to do more with my career,” said King, whose rental apartment limits tenants to two pets. “But the housing market is looking pretty bleak, and I can’t afford to be upside down on a loan at my age.”
Bank Loans
Wall Street banks have raised the prime lending rate to match Fed's hikes
Activists rallied outside the Fed’s headquarters earlier this week to remind officials that the tighter policy they’re plotting has a human cost.
Even so, the labor market has remained incredibly tight, with the unemployment rate hovering near the lowest in 50 years and nearly two available jobs for every unemployed person.
Combined with savings accumulated through the pandemic, consumers are still largely in a strong position, which should help shield them from the effects of higher rates, said Michael Garry, founder and chief executive officer of Yardley Wealth Management.
But some cracks are emerging. Applications for unemployment insurance, when smoothed out on a moving average, have risen in nine of the last 10 weeks.
“The worst-case scenario is that companies cut jobs, and the ones that might have expanded don’t expand, then everybody loses confidence and we get the downward spiral into recession,” said Erica Groshen, former commissioner of the Bureau of Labor Statistics, who now serves as a senior economics adviser at the Cornell University School of Industrial and Labor Relations.
--With assistance from Misyrlena Egkolfopoulou, Alex Tanzi and Claire Ballentine.
This article was provided by Bloomberg News.