The Fed is embracing a possible housing-market correction as a way to get ‘red-hot’ prices back to a more sustainable level

The housing market is in a slump. That’s a good thing, according to Fed Chair Jerome Powell.
After years of “red-hot” prices, a correction can help boost home affordability, he added.
The Fed is poised to keep raising rates into 2023, meaning the market decline is likely in its early stages.

The housing market is in a nosedive. It’s just what the Federal Reserve ordered.

After two years of skyrocketing home prices and historically low inventory, the market is falling back to earth. It comes at a critical time for the US economy. The Fed raised interest rates again on Wednesday in hopes of cooling demand and pulling inflation back to sustainable levels. Such increases are the central bank’s best tool for slowing the price surge, but it can take several months for their effects to reverberate throughout the economy.

The housing market, however, has responded quickly. Higher mortgage rates have helped activity in the sector “weaken significantly” over the last few months, Fed Chair Jerome Powell said in a Wednesday press conference. The US has had a “red-hot housing market” for much of the pandemic, and pulling prices lower will help in the Fed’s fight against inflation, he added.

“What we need is supply and demand to get better aligned, so that housing prices go up at a reasonable level, at a reasonable pace, and that people can afford houses again,” the chair said. “We probably in the housing market have to go through a correction to get back to that place.”

That correction has already begun. Sales of both new and previously-owned homes slowed to multi-year lows through the summer as soaring mortgage rates crushed buyer demand. Price growth has eased across the US, and some cities have already seen home values tumble from recent highs.

The slump doesn’t resemble …read more

Source:: Businessinsider

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