The housing market saw high interest rates and inflation in 2022, but things are starting to look up, as supply chains ease, prices moderate and new home construction ramps up. Housing prices edged up a slight 0.5% from March to April, according to the S&P CoreLogic Case-Shiller Index, still roughly 1.8% below their June 2022 peak. Still, economists say the U.S. has a long way to go to tackle its stubborn housing shortage, estimating that 1.5 to 5 million homes are needed to fill the gap.
By Tiffany Moustakas, Editor at LinkedIn News
Inflation eases but Fed can’t conquer housing prices
As the Biden administration cheers signs that price rises across the economy have started to cool, homeownership remains out of reach for many first-time buyers.
Consumer price inflation is easing, sparking hope that the U.S. may be turning the corner on the worst price spikes in decades.
Yet the single biggest component of the Consumer Price Index — housing costs — continues to be the main driver of inflation, rising twice as fast as everything else.
The government reported Wednesday that overall inflation rose 3 percent on an annual basis in June — the lowest level since March 2021. But the cost of shelter soared by 7.8 percent in a reflection of post-pandemic rent spikes, part of a trend that has defied the Federal Reserve’s aggressive interest rate hikes over the past year.
“For younger voters, who are seeking to move out of rentals or to find an affordable first home close to work, that can be close to impossible minus a down payment from a wealthier parent,” said Karen Petrou, co-founder and managing partner of Washington-based consulting firm Federal Financial Analytics. “This is one of the really classic aspects of American economic inequality,” she said. “People are squeezed.”
The Fed has raised its benchmark interest rate by 5 percentage points since March 2022 in a bid to rein in inflation, and central bank policymakers will meet July 25-26 to discuss whether to resume hiking rates after pausing last month. While overall consumer price gains slowed, the stickiness of housing inflation is among the factors adding to speculation that the Fed will raise rates.
A top Biden administration official welcomed the news that inflation moderated last month.
