Why this tightening cycle is so brutal for the US housing market
Mortgage rates overshot the Fed.
The US Federal Reserve’s efforts to rein in inflation are hitting the US housing market hard: Last month, employment in residential building fell 4.5%. In May, the number of permits for new homes fell 7%, and new homes started fell 14%.
Arguably, that’s too hard. As the Fed started hiking in March, the average cost of borrowing to purchase a home with a 30-year fixed-rate mortgage was already rising, but it shot up to 5.8% by June. Now, it has fallen slightly to 5.3%.
At the recent peak in the federal funds rate, 2.4% in 2019, mortgage rates didn’t break 5%. Today, the Fed is paying banks 1.2% on their deposits. The last time housing credit was so expensive was when the housing bubble popped in 2008.
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