Why Federal Interest Cuts Aren’t the Only Solution to the Affordability Crisis
Audio version available here:
Length: approx. 1 min. 30 sec.
Much pressure has been on the Federal Reserve to lower interest rates as inflation nears its 2% target with the likelihood of a soft landing. This comes as housing continues to be affected by an affordability crisis. But would lowering interest/mortgage rates really be the solution?
On the housing side, Americans being unable to move out into their own home is fueled by more than high mortgage rates. Low supply and exorbitant house prices are additional barriers for low-income and first-time home buyers, making the 1.16% decrease in the “average 30-year fixed mortgage rate” since October 2023 far from appealing. The Fed suddenly lowering its current rate to the near-zero rate from 2021 would not be viable either, as that action contributed to the extreme prices seen today.
Meanwhile, the current affordability crisis has not just affected housing. Grocery prices are up by 25% from before the pandemic and show no sign of going down. But these prices are not directly tied to the rates the Fed sets, so what gives? “Ongoing supply chain disruptions, droughts, avian flu and other factors” have kept consumers from seeing relief at the checkout lane. Experts predict that rather than prices going down to pre-pandemic levels, consumers should expect them to stabilize where they are now.
As much as lower Fed rates could bring some relief to Americans, the reality is that it will take much more than lower interest rates to shake America out of its affordability crisis. Food and housing are essentials, and until significant change comes to their supply and prices, people may have to compromise on them.
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