A housing shortage has afflicted much of the nation over the past four years as inflation took hold of the nation’s economy. The Federal Reserve reacted by raising the lending rates for banks, which in turn raised the lending rates for consumers. Higher lending rates help tighten the nation’s money supply, which helps reduce inflation.
The Federal Reserve raised the lending rate from less than 3 percent to the current rate of 5.5 percent. The higher lending rate means buyers must pay much more in interest over the life of a mortgage than when it was at about 2.5 percent, real estate expert Patrick Carroll said. The higher lending rate has had a chilling effect on the nation’s housing market.
How a Higher Lending Rate Reduced Housing Availability
The higher lending rate means fewer buyers are available for homes. When the interest rates are higher, more buyers are willing to wait and see how local, regional, and national housing markets react. Supply chain issues coming out of the COVID-19 pandemic also tightened the nation’s housing supply.
The reaction has been fewer homes available for sale and slower new housing construction. A tightened housing supply and higher interest rates cause housing prices to rise. Many current homeowners are hesitant to sell when they have a mortgage rate of 3 percent or less. The higher Federal Reserve lending rate and resulting higher mortgage rates mean homeowners generally are better off staying in their current homes until the rates go lower. Fewer sellers mean fewer homes available, which makes it harder to find an affordable place to buy.
Federal Reserve Says It’s Time to Lower the Lending Rate
Federal Reserve Chairman Jerome Powell has said the committee that determines lending rates has a target of 2 percent inflation before lowering the rate. The Federal Reserve is awaiting the September consumer price index report and the inflation rate before deciding to lower the lending rate. Powell is anticipating good news and says a rate cut is likely. If that happens, the nation’s available housing supply should rise.
More available housing means more people can shop and find homes that fit their budgets. A lower lending rate means current homeowners who would like to sell and buy a more suitable home can do so without paying more in interest. Lowering the lending rate should be beneficial to local, regional, and national housing markets and make it much easier for people to find and buy the ideal home for their needs.