Bridger Pennington argues that Fed rate hikes actually help housing affordability by dampening demand and pushing prices down, unlike the near-zero rates during COVID that sent median home prices surging. Higher rates pressure sellers to lower prices, though buyers face short-term pain.
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Here is a totally different take on the housing market than you probably haven't heard yet. There's tons of headlines like this, that housing has never been so expensive, and the Fed just increased interest rates. They're trying to kill us home buyers. Like, no one can buy a home, and homes are the most expensive in history, quote unquote. Most people are priced out of home ownership. Now here's a different perspective. Imagine the Fed cut rates significantly, right? Let's say mortgage rates drop. Well, guess what would happen? A lot of people could afford homes right now. And guess what would happen? People would go buy homes. This is exactly what happened in COVID. They cut rates to pretty much zero, and guess what happened to median home prices? This is a chart of median home prices through the roof. Now that they've raised rates, guess what? Median home prices have slowly trickled down. If many people are priced out of homes, which they are, that means there's less buyers for homes, which means if you're trying to sell a home right now and you got to get out of a house, you just built a house. What do you have to do? You have to lower prices. Now, many people thought rates would come down more than they have, and so many home sellers were like, ah, we'll just wait, we're going to wait it out. But every day that goes by, it's kind of a stress test of who wants to move. And if they keep raising rates, homeowners or home builders will be forced to lower prices to just get homes off the market because they have debt service that they are paying. That squeezes them, which means this median home sales price should keep trickling down as interest rates go up. So yes, lowering rates now would short-term help this, but then this problem would happen again, and we'd have the same conversation in 2030 or 2031. So yes, this sucks right now. You feel like you're priced out of a home, but someone's got to move. Either buyers need to make more money and buy a more expensive house, or sellers— I believe sellers of homes will go, well, Alright, let's lower prices then until we can get a sale. Additionally, the Fed lowered rates 3 times in the last 18 months and mortgage rates went up, not down. There isn't a direct correlation between the Fed interest rate and also the mortgage rate. That's priced by the market, not the Fed. Now, it's usually in conjunction and correlation with the Fed, but we saw the last 2 years, it's actually they lowered rates and mortgage rates went up. So, yes, I know this sucks if you're trying to buy a house right now, but Perhaps by keeping rates where they're at or going up over time, home prices should drop and be more affordable to get into later on. But we'll see what happens. Comment down below what you think and follow along to stay in the loop.
