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Fed hikes interest rates by 75 BPS at the FOMC meeting in November 2022. US Housing Market Overheated?


Following its meeting on November 1-2, the Federal Open Market Committee (FOMC) increased the federal funds rate by 75 basis points (BPS), raising it to a range of 3.75% to 4%. 

In its last four sessions, the Federal Reserve has increased interest rates by 75 basis points (BPS), making a total of six hikes this year. 

While seeking to tame the highest inflation in forty years, the Federal Reserve is unlikely to change course and lower its rate of interest in the coming year.  

Jerome Powell, Federal Reserve Chairman said, “The housing market needs to get back into a balance between supply and demand.” 

US Housing Market is very Overheated right now. What would be the fate of homebuilders and homebuyers? 

Let’s know more about the FOMC meeting in November 2022 and the fate of the US housing market. 

US inflation is soaring 

FOMC Meeting Date Rate Change (bps) Federal Funds Rate
Nov 2, 2022 +75 3.75% to 4.00%
Sept 21, 2022 +75 3.00% to 3.25%
July 27, 2022 +75 2.25% to 2.5%
June 16, 2022 +75 1.5% to 1.75%
May 5, 2022 +50 0.75% to 1.00%
March 17, 2022 +25 0.25% to 0.50%

2022 Fed Rate Hikes: Taming Inflation

According to the Bureau of Labor Statistics, consumer price index (CPI)-based inflation reached 9.1% in June, the highest level in 41 years. 

Inflation in the United States grew by 8.2% in September 2022 compared to a year prior, according to the consumer price index (CPI). However, that is nothing new. Through 2022, the reading has consistently indicated a growth of at least 8% year over year. 

The core personal consumption expenditure price index (PCE), which excludes the cost of gasoline and food, is one that the Fed constantly monitors and may be more concerning. The Fed has a clear objective of 2% annual PCE inflation. 

In an effort to raise longer-term interest rates, the country’s central bank is shrinking its enormous balance sheet through a procedure known as quantitative tightening. 

Even as the Fed has continued to raise interest rates, prices have risen well over their target rate. Fed officials anticipate the issue to continue into the following year. 

US Housing Market 

Following the pandemic, the housing market saw significant overheating because of rising demand and historically low rates of interest.  

After the pandemic, the housing market became extremely hot because of rising demand and low-interest rates. A balance between supply and demand needs to be restored in the market.  

Some industry analysts believe that the once-hot housing market has fallen because of how quickly it has cooled recently.    

According to the National Association of Home Builders/Wells Fargo Housing Market Index, which gauges the pulse of the single-family housing market, sentiment among builders fell in August to its lowest level since the start of the COVID-19 pandemic, signifying a slowdown in the market. 

As purchasers withdrew from the market, the number of home sales that were abandoned in July increased to a two-year high.  

According to a new Redfin report released on Tuesday, over 63,000 house purchase agreements were canceled in July, which equates to 16% of the homes that were put under contract during that month. This is the highest rate in more than two years and represents an increase from the 15% of agreements that failed in June. 

The housing market’s slump is compelling buyers to lower their asking prices. The housing market will continue to decline, according to Goldman Sachs economists, and home price growth will “decelerate considerably in the next couple of quarters,” they said in an analyst note last week. The surge in housing prices will cease in 2023, according to economists. 

Read More >> Key Advantages of Outsourcing Architectural Design and Drafting Services

As a result, consumers must now pay higher mortgage rates. These rates spiked in the first half of the year when the Fed started raising interest rates, but they have since leveled out due to mounting concerns about the status of the American economy and the possibility of an impending recession. 

Jerry Howard, CEO of the National Association of Home Builders (NAHB), expressed concern that the housing market will continue to deteriorate and will likely “remain at the bottom” until the November elections on “Varney & Co.” on Monday. 

Jerome Powell, the chairman of the Fed also recognized a housing market imbalance as mortgage rates increased from 3% in August 2021 to nearly 7% now. 

However, Powell stated clearly that managing inflation is his primary priority, and if anything, Powell is more interested in bringing inflation down than in trying to sustain asset valuations for stocks, bonds, and housing. Today, there isn’t much support for the so-called “Fed put,” which refers to the Fed’s potential intervention and rate-cutting efforts in the event of a dramatic decline in stock prices. That can also be unpleasant for the housing market. 

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