Lower Mortgage Rates Aren't Boosting U.S. Housing
The residential real estate market is less affordable now than anytime since before the financial crisis.
Traffic is down at open houses.
Photographer: Bloomberg
Federal Reserve Chairman Jerome Powell is facing a housing conundrum. The market is in the midst of a 15-month slump, with home price gains and sales having slowed dramatically and permits to build new dwellings slumping by 6.6% to the lowest level in more than two years. This despite a big drop in market interest rates thanks to the Fed’s dovish pivot earlier this year.
Of course, a recession would pull down prices and solve the affordability problem (a National Association of Realtors index shows housing is less affordable now than any time since before the financial crisis). But a recession is exactly what Powell hopes to avoid by lowering benchmark interest rates that are already near historic lows. The thing is, though, 30-year mortgage rates are already at a very low 3.75%, down from almost 5% in November, and housing hasn’t responded. Applications to purchase a home have declined for four weeks running according to the latest Mortgage Bankers Association data. It’s not clear that even lower rates will help.