After a streak of 131 months of price growth, median existing-home prices declined by 0.2% to $363,000 in February compared to the same month the previous year. With the Fed hiking the federal funds rate eight times so far, the housing market has become overly sensitive to changes in interest rates.

 

According to Daryl Fairweather, the chief economist at Redfin, the Fed has been almost too effective at speeding up and slowing down the housing market. The Fed's announcement in December 2021 that it would be raising short-term interest rates to control inflation led to a steady rise in mortgage rates, resulting in one of the most competitive quarters for homebuyers since the onset of the pandemic.

 

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Although the Fed's monetary policy slowed down price growth, opinions are varied on what would have happened if they had done nothing at all. Abbey Omodunbi, a senior economist at PNC, notes that house prices were on a tear in 2020 and 2021 because of the demand-supply imbalance in the housing market. House price growth would have accelerated if the Fed had not started tightening monetary policy.

 

The Fed's moves have not only affected home prices, but also resulted in losses in home values for some homeowners. National Association of Realtors' Chief Economist Lawrence Yun says that "prices would not have fallen if the Federal Reserve did not raise interest rates so aggressively."

 

As the Fed continues to push towards its projected target rate of 5.1%, experts are weighing in on what's next for the housing market. With the pandemic housing market boom slowing down and mortgage rates doubling compared to the beginning of the year, it remains to be seen how the housing market will react to the Fed's continued rate hikes.

 

The housing market has been on a rollercoaster ride in the past year, with home prices soaring to record highs before falling for the first time in 131 months. Experts say that the Federal Reserve's rate hikes, which led to higher mortgage rates, played a significant role in slowing down price growth. However, the question remains: what would have happened if the Fed had done nothing at all?

 

According to Lisa Sturtevant, the chief economist at Bright MLS, it's not clear what the counterfactual would have been. Unchecked inflation could have seriously eroded buyers' purchasing power, and the fast pace of price growth could have slowed anyway. Jeff Taylor, the founder and managing director at Mphasis Digital Risk and a board member at the Mortgage Bankers Association, agrees that prices still would have come down if inflation continued to run rampant, likely leading to a faster recession and economic hardship.

 

The recent Fed rate hike may lead to a more subdued spring housing market than anticipated at the beginning of the year, with mortgage rates likely heading up again. A half percentage point increase in mortgage rates could increase the monthly payment of a typical homebuyer by over $100, according to Sturtevant. Elevated mortgage rates could also lead to further softening in home prices.

 

Overall, the housing market is overly sensitive to Fed rate hikes, with experts weighing in on the potential effects of monetary policy on home prices. While it's difficult to predict what would have happened if the Fed had taken a different course of action, it's clear that the recent rate hikes have had a significant impact on the housing market.

 

The housing market has experienced significant ups and downs over the past year, with record-high prices followed by a decline for the first time in over a decade. The Federal Reserve's rate hikes and resulting higher mortgage rates have played a role in slowing down price growth. However, it's uncertain what would have happened if the Fed had taken no action, as unchecked inflation could have eroded buyers' purchasing power and slowed down price growth anyway.

 

The recent Fed rate hike is expected to lead to a more subdued spring housing market than initially anticipated, with mortgage rates likely to increase again. The increase in mortgage rates could increase the monthly payment of a typical homebuyer by over $100, leading to further softening in home prices. The housing market is sensitive to Fed rate hikes, and experts continue to weigh in on the potential impact of monetary policy on home prices.

 

Overall, while it's difficult to predict what would have happened if the Fed had taken a different course of action, the recent rate hikes have had a significant impact on the housing market, which is expected to continue in the near future.

 

According to Jeff Taylor, the founder and managing director at Mphasis Digital Risk and a board member at the Mortgage Bankers Association, it is the daily trading of mortgage bonds that moves mortgage rates, not Fed actions. As bond investors become more bullish, seeing the Fed taking measures to moderate inflation, mortgage rates are likely to drop, as lower future inflation makes bonds more valuable. Taylor suggests that as the Fed continues to fight inflation, mortgage rates are likely to drop even further, which is good news for homeowners.

 

Taylor also notes that home prices dipped from their peak as higher rates resulting from the Fed's inflation fight slowed down home sales. However, prices rose slightly in February as rates dipped to near 6% in January.

 

In conclusion, the Federal Reserve's rate hikes have had a significant impact on the housing market, with higher mortgage rates slowing down price growth. While the effects of different courses of action are difficult to predict, experts agree that unchecked inflation could have seriously eroded buyers' purchasing power, and the fast pace of price growth could have slowed anyway. As the Fed continues its inflation fight, mortgage rates are likely to drop more, which is good news for homeowners.

 

 

This article was based on information from USAToday.com, with quotes and insights from Lisa Sturtevant, the chief economist at Bright MLS, and Jeff Taylor, the founder and managing director at Mphasis Digital Risk and a board member at the Mortgage Bankers Association.