Opinion: Cooling Market Won’t Make Housing More Affordable

Anticipating rising mortgage rates prompted by the Federal Reserve, Conor Sen argues that “any slowdown that does materialize won’t affect the industry equally because it isn’t going to be about fundamental problems with the housing market. Rather, it will be the result of the Federal Reserve intentionally increasing borrowing costs to cool off inflation.”

According to Sen, “Any negative impact of rising mortgage rates would be felt disproportionately where affordability problems already are the worst — high-cost coastal markets — and then in materials for the early part of the construction cycle, such as lumber.”

Unlike during previous downturns, “For now, at least, there is no broad industry downturn as we’ve seen before in oil and gas or the technology sector that would lead to the housing market suffering in places like Houston or the San Francisco Bay Area.” Rather, Sen writes, “What we’re seeing instead is that the surge in mortgage rates engineered by the Fed is adding to affordability problems. So it stands to reason that the places most affected will be metro areas that were already the least affordable.”

Additionally, “There also is the post-pandemic migration dynamic of high-income households moving from high-cost to lower-cost areas.” 

To Sen, the future of the housing market is unclear as mortgage rates climb in a still overheated market. “If there is any upside for buyers in the current market, it’s that because the affordability problems created by rising mortgage rates are intentional on the Fed’s part, they can always reverse those increases if it turns out they’ve overdone it to the point it threatens the economy.”