You want inflation to stop or slow down? Watch what’s about to happen with your home...
President Joe Biden meets with Federal Reserve Chairman Jerome Powell in the White House on May 31. Powell and the Fed are seeking to cut its balance sheet through a process called “quantitative tightening” that is expected to curb the increase in housing prices.Housing, interest rate policy and inflation interact in complex ways. Inflation in some areas spirals, as expectations of price increases tend to cause prices to rise further.
The median listed home price in San Antonio this spring was $295,000, up 16 percent year over year. The median home price in Houston is $328,000, up 19 percent. Nationwide, the median new home price is $450,000, up 45 percent from two years ago. This is serious inflation. The Federal Reserve’s balance sheet roughly doubled in response to the 2008 crisis, from $1 trillion to $2 trillion, in a process known as quantitative easing, or QE. The basic mechanism of QE was buying huge quantities of mortgage bonds and Treasury bonds, which freed up cash for banks and encouraged them to lend more.
We already see the effect on mortgage rates, as markets react to rate hikes and the announced end of QE. A 30-year fixed rate mortgage this past week was quoted at 5.9 percent, up more than a full percentage point from 2 months ago. Thirty-year fixed rates are up 3 percentage points from a year ago.Mortgage rates matter because they are the fastest and largest mechanism for Federal Reserve policy to reach consumers — through the housing market.