Have the Fed's interest rate hikes led to loss of control of the housing market?

The Federal Reserve Bank of New York recently issued a warning that Americans may be undergoing a credit crunch. Ten days later, on July 26, the national Federal Reserve Board voted to hike interest rates again by a quarter of a percentage point.

“The average reported probability that a loan application will be rejected increased sharply for all loan types,” the New York Fed reported of the June numbers. “It rose to 30.7 percent for auto loans, 32.8 percent for credit cards, 42.4 percent for credit limit increase requests, 46.1 percent for mortgages, and 29.6 percent for mortgage refinance applications. The readings for auto loans, mortgages, and credit card limit increase requests are all new series highs.

FHA credit is the “easiest credit” for many Americans to get their hands on, Pinto said, because of government guarantees, and it is growing. Nationally, the hiking of housing prices “slowed down tremendously from the pace they were at, but they did not get below zero,” he said. The housing market now looks likely to be heading well above the Fed’s overall target of 2% inflation annually.Pinto gave several reasons for a robust housing market that continues to climb higher even at interest rates for borrowers above 7%.

Another supply problem is that many people aren’t willing to sell because they bought or refinanced during the pandemic at very low rates, often 2%-3%.Barring a recession, Pinto reckoned it will take a decade to work out the “lock-in effect” of those low rates, which were made possible by massive stimulus, care of the Fed.

The high-end punch bowl is usually left largely alone by the Fed, though its response to the pandemic changed that. It “soared” for a while, Pinto said. Though, high-end housing prices in most markets have drifted down some after the Fed eased back on that.

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