Recently released government data hammered home what we have known for at least a year: A national housing shortage, not broad-based price increases, is driving inflation. Inflation over the past year was 3.1% — far less than in 2021 but still high enough for the Federal Reserve to keep interest rates elevated.
The remedy for housing-fueled inflation is also different from standard responses to broad-based price growth. One might have expected the Fed’s interest rate hikes — which caused mortgage rates to rise with unprecedented speed — to slow down housing prices. But while prospective homebuyers did pull back from the market, residential listings were in free fall during the pandemic and have yet to recover. That means would-be buyers face tight inventories and higher prices.