Housing Market Cooldown Will Only Lead to More Dysfunction
Wednesday's Federal Reserve meeting provides the clearest sign yet that the central bank is treating inflation as a national emergency, with markets expecting a 0.75% interest-rate increase. But the Fed's policy actions come at a hefty cost, particularly in the housing market.
With mortgage rates having breached 6%, the housing market is slowing. And while this might be an acceptable short-term price to pay in the fight against inflation, it's going to create future supply-chain problems once inflation is under control and we're ready for activity to pick up again.
The refinancing market is providing a glimpse of what’s to come. When mortgage rates are low, as they were from 2020 through the beginning of 2022, refinancings surge as homeowners take advantage of lower rates to secure a smaller monthly payment and take cash out of their homes. That process generates economic activity and jobs for people who assist in the transaction — loan officers, appraisers and closing attorneys — even software companies like DocuSign, as anyone who refinanced over the past couple years can attest.
But with mortgage rates north of 6%, refinancings have screeched to a halt, down more than 80% from the pandemic peak and now at their lowest level in over two decades.
This is leading to layoffs at companies operating in the mortgage sector, such as loanDepot, because there is simply not enough work to do.