Introduction: The Fed’s rate

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In recent years, the U.S. economy
has experienced rapid inflation
in almost every sector except the

housing market, which has been crippled
by skyrocketing prices and chronic shortages.
But the policies that could

help solve America’s housing crisis
could make it much worse. To
understand why, let’s take a
look at how we got here.

At the heart of the housing problem
is an imbalance between supply
and demand. This is Econ 101. There

are more prospective buyers
than houses for sale.

This was already true before the pandemic and increased demand. With mortgage rates rising from historic lows in 2020 to their highest levels in a generation last year, the market has become nearly impenetrable.

If the Fed (almost certainly) starts cutting rates on Wednesday, that should, in theory, calm the market.

However, much depends on how aggressive central banks are to reduce overall borrowing costs.

unlikely but not out of the question

is a sign that the Fed is serious about reversing the “lock-in” effect that prevents homeowners from getting low-interest loans high interest rate tariff environment.

If the central bank changes course aggressively, such as by raising interest rates, funding costs will fall, leading to a glut of existing real estate and pushing prices down somewhat.

Daniel Albert, managing partner at Westwood Capital, told me: “As negative as this may sound, this is an unqualified advantage in this post-pandemic cycle. Falling prices for owner-occupied housing push people out of the rental market, causing rents to fall – Albert calls it the “Goldilocks scenario”.

But the slow, gradual easing shouldn’t shock homeowners, especially in the early stages of the epidemic, when less than 3% of mortgages had to be refinanced. This is especially true when real estate prices are high in the United States.

This is part of the distribution problem.

Although the Fed cannot build houses, it can create more attractive sales opportunities for home owners, presumably by influencing the mortgage

interest rate at the base rate level. Due to market expectations regarding interest rate cuts at the Fed’s September meeting, mortgage interest rates already fell to 6.2% last week from 6.7% at the beginning of August.