Housing is flashing warning signs just as the Fed weighs more interest rate hikes
Housing data deteriorated further in September, according to separate reports Tuesday.
TL;DR
- Housing data from September indicates a further deterioration in the market, with pending sales at an all-time low and housing starts declining more than expected.
- High mortgage rates, currently around 7.43% and potentially rising with future Fed hikes, are significantly impacting housing affordability.
- The Federal Reserve faces a policy dilemma: raising interest rates to fight inflation could worsen the housing slump, while lowering rates might fuel inflation.
- Despite the housing weakness, broader price pressures persist, with wholesale final demand goods prices rising at the fastest pace since 2009.
- Economists predict further weakening in the housing market, with sustained high mortgage rates expected to reduce housing turnover and new construction.
- More than 95% of mortgage borrowers have rates below the current prevailing level, creating a 'lock-in' effect that discourages moving.
- Market expectations are for the Fed to hold rates steady for now, but with a possibility of hikes in December and March 2027.
- Some optimism exists that mortgage rates may be topping out, as they have risen more than short-term Fed rate hikes.