As Goes Inflation, So Goes the Housing Market

Rising mortgage rates may still price some buyers out, but help may be on the way with a cooling inflation trend
By EDDIE RIVERA, Editor, Weekendr Magazine
Published on Dec 14, 2022

Rising mortgage rates, which had resulted in fewer mortgage applications this past fall,  are taking their toll on sellers, while still keeping some buyers out of the market.  

According to recent Zillow data, in Los Angeles County, the typical home price fell 0.5% from October to $842,752 last month. Prices are now 6.3% lower than last May’s peak.

However, since those numbers last month, mortgage rates have fallen, dropping to their lowest level since September, according to Zillow Research, and may drop again, depending on this week’s key update on inflation.

Federal Reserve Chair Jerome Powell noted recently that the Fed had seen continuing signs of cooling inflation—including groceries and fuel—and hinted the central bank was ready to ease their recent tightening monetary policy. 

According to Powell, inflation remains the main focus for investors.  

In fact, mortgage rates hardly moved recently in response to the monthly jobs report, which usually has a stronger impact on markets. 

While the investment landscape can change quickly, investors are eager to hear the latest inflation update and statement from Powell.

According to Zillow research, some recent rate movements indicate that markets are evaluating their positions as those announcements are still pending.

Recent Fed data showed that labor costs were lower than expected in 2022’s third quarter, which is another possible sign of diminishing  inflation. As bond yields and mortgage rates fell in response, inflation seems to remain the primary factor in gauging real estate markets and the economy at large. 

Zillow also noted in a recent report that affordability, which is defined as the share of median income required to pay housing costs, is the biggest challenge for buyers, sellers and renters today. 

Monthly mortgage costs have actually doubled since 2019, said Zillow.

High mortgage rates are pushing buyers to the sidelines, and depleting inventory number as homeowners decide not to sell for the moment. 

“Affordability will continue to be the driving force in the housing market in 2023,” said the report, “but there is a decent chance it will improve. At the very least the market should stabilize, making it possible for households to budget and plan for housing decisions coming up in the months and years ahead.”

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