The Federal Reserve: The Real Villain Behind the Great American Housing Crisis?

Get ready for a tale of fiscal folly that has Americans gnashing their teeth in frustration. While everyone is busy pointing fingers at international trade wars and fluctuating Treasury yields for skyrocketing mortgage rates, let's shed light on the real puppet master pulling the strings: the Federal Reserve. Oh yes, the guardians of the U.S. economy are doing a splendid job of turning the housing market into a game of Russian roulette.

We've already gone through how mortgage rates are undergoing seismic shifts, with both fixed-term and adjustable-rate mortgages soaring to 20-year highs, from record lows set in 2020, causing mild hysteria at dinner tables across the country. But what's juicing this volatility? It's the Federal Reserve's relentless push to hike up interest rates. Aimed at controlling inflation and other macroeconomic issues, the outcome is wreaking havoc on the hopes and dreams of homeowners and would-be buyers alike.

Think you're immune? Think again. Whether you're an average Joe looking to step onto the property ladder, or you're already ensconced in your dream abode, the Fed's actions will come knocking at your door, and they're not bringing a welcome basket. With the Federal Reserve pouring metaphorical gasoline on the already inflamed mortgage market, current mortgage rates are surging like there's no tomorrow. And remember, we're not talking about a harmless uptick; these are dramatic shifts that are adding weighty dollars to your long-term obligations. 30-year mortgage rates today are over 7.00 percent, nearing 8.00 percent. 5-year adjustable mortgage rates averaged over 8.00 percent and Bank of America was offering several adjustable rates over 8.00 percent.

But wait, there's more! The Fed's actions have a domino effect that cascades through the entire housing market. High interest rates effectively put the brakes on borrowing, thereby clogging the arteries of real estate growth. What happens when people don't want to borrow at these high rates and current homeowners don't want to sell because they've locked in a low rate a couple years ago? Home prices continue to move higher as a result.

Perhaps the most insidious aspect is the socioeconomic impact. We're staring down the barrel of a future where the middle and lower-income brackets are effectively locked out of home ownership. Sure, high interest rates might be a rich man's annoyance, but for the middle class, they're a barrier, and for the lower-income groups, they're often an insurmountable wall. Essentially, the Fed's policies could be manufacturing a housing crisis that discriminates based on income, turning the universal dream of home ownership into an exclusive club.

So, what's an aspiring or current homeowner to do amidst this financial maelstrom? First, your online mortgage rate comparison game needs to be strong—like, "Olympic athlete" strong. Second, consider making your voice heard in the policy arena. The story behind every mortgage rate is a story of real people making real life decisions, and those stories deserve to be part of the policy conversation.

If you're wondering why the housing market feels like it's on shaky ground, consider directing your ire towards the Federal Reserve. We're talking about an institution that, in its quest to manage macroeconomic dynamics, is inadvertently throwing the average American's housing aspirations under the bus. The great American mortgage/housing crisis might just be getting started, who knows when rates will stop going up and start coming down? When rates do finally move lower, will that open the fold gates for home buyers and drive home prices even higher? Barbara Corcoran recently said housing prices could soar when mortgage rates come down.

Author: Brian McKay
August 31st, 2023

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