The hot housing market that has sent average home prices to record highs in 2022 is likely headed for a correction, Federal Reserve Chair Jerome Powell said on Wednesday. Whether that leads to lower purchase costs for home buyers remains an open question.
Powell made his comments at a news conference following the Fed’s decision to raise its benchmark interest rate by 75 basis points in its ongoing quest to tame inflation — the third straight time rates have been hiked by that amount.
His comments also came on the heels of the National Association of Realtors’ latest home sales report, released on Wednesday. That report found that existing-home sales experienced a slight dip in August 2022 — the seventh straight month of declines. Year-over-year sales fell in all four major U.S. regions.
Despite slower sales, housing prices have continued to zoom higher in 2022 as the supply of new homes lags in demand.
“There was a big imbalance … housing prices were going up at an unsustainably fast level,” Powell said. “For the longer term what we need is supply and demand to get better aligned so housing prices go up at a reasonable level…and people can afford houses again. We probably in the housing market have to go through a correction to get back to that place.”
He added that a deceleration in housing prices should help bring them closer in line with rents and other housing market fundamentals – something he called a “good thing.”
As Fortune reported, the housing market began to see a slowdown in sales not long after the Fed began raising interest rates. The slowdown was mild in the beginning but has since grown stronger. Year-over-year, new home sales and existing home sales in 2022 are down 29.6% and 19.9%, respectively.
Yet home prices are still pushing higher. The median price of an existing home sold in August was $389,500, CNBC reported. That was up 7.7% from a year ago. However, prices did decline about 6% from June 2022 to August 2022.
The monthly declines might give potential home buyers hope that they will start seeing more affordable prices. But even if that happens, borrowing costs have gone up along with interest rates. As GOBankingRates previously reported, the average interest rate on a 30-year home loan recently reached 6% for the first time since 2008. The Fed’s latest rate hike will likely push mortgage rates even higher, experts say.
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