Few industries are as sensitive to interest rate changes as housing. As borrowing costs rise, purchasing power declines. That creates a drag on accelerating home prices, which can stimulate more owners to put their homes up for sale in hopes of cashing in before prices fall.
Supply increases as demand drops — threatening a wicked cycle for what often is Americans’ biggest investment.
It is one of the worries as the Federal Reserve fights inflation. The central bank must raise its target short-term interest rate in hopes of cooling pandemic-induced higher prices. Mortgage rates have jumped as a result. The average 30-year mortgage interest rate has almost doubled from a year ago. That adds about $600 a month to the cost of borrowing money to buy a median priced existing home.
