Since the spring of 2022, the Fed’s federal funds rate target—which is the interest rate banks charge one another for overnight loans—has increased to 2.5%, up from 0.25% in February. The Fed’s actions have increased interest rates on everything from credit cards to mortgages. The higher mortgage rates are starting to bring down prices, but the lower prices will be temporary without the supply increases that are needed to make housing more affordable.
The average 30 and 15-year mortgage rates are at their highest levels since 2009, as shown in the figure below from the American Action Forum’s latest housing chartbook by Thomas Wade. The 30-year rate is nearly double what it was in 2021, while the 15-year rate has already more than doubled.
Despite these increases, both rates are still near historic lows and are below the 6% to 7% rates that were the norm from 2001 to 2009.
While interest rates may not be high by historical standards, the recent increases are still causing prices to fall. Both the Case-Shiller and FHFA housing price indices have begun to level off, as shown in the two figures below.
https://www.forbes.com/sites/adammillsap/2022/09/13/the-federal-reserves-rate-hikes-are-cooling-the-housing-market-but-land-use-reforms-still-needed/?sh=1641d4832abf
https://www.forbes.com/sites/adammillsap/2022/09/13/the-federal-reserves-rate-hikes-are-cooling-the-housing-market-but-land-use-reforms-still-needed/?sh=1641d4832abf
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