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Opinion: Unique Challenges in the Housing Market

Author

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  • Kartik B. Athreya

Abstract

The Fed's monetary tightening over the past year has had an immediate effect on the housing market. The average interest rate on a 30-year fixed-rate mortgage more than doubled from about 3 percent at the end of 2021 to around 7 percent by the fall of 2022. Higher mortgage rates — so long as inflation is not expected to stay high — raise the real cost of borrowing to buy a new home, so it is no surprise that new home sales declined throughout 2022. But if the Fed didn't act to bring inflation down, we could expect lenders to charge high rates simply to break even in real terms. The average 30-year fixed-rate mortgage at the start of 1980, before the Fed began tackling the Great Inflation, was nearly 13 percent.

Suggested Citation

  • Kartik B. Athreya, 2023. "Opinion: Unique Challenges in the Housing Market," Econ Focus, Federal Reserve Bank of Richmond, issue 1Q, pages 1-36.
    • Handle: RePEc:fip:fedrrf:95769
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    File URL: https://www.richmondfed.org/-/media/RichmondFedOrg/publications/research/econ_focus/2023/q1/opinion.pdf
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