The U.S. housing market continues to search for momentum, but several major economic forces are making it difficult for buyers, sellers and investors to find much of it.
One of the newest pressures comes from continued instability in the Middle East, which has helped keep oil and gasoline prices elevated. According to the U.S. Energy Information Administration, energy prices remain an important factor for consumers and the broader economy.
For consumers, higher gasoline prices certainly hurt. But some historical perspective is important. Prices remain below the record highs Americans experienced in 2022, when the national average climbed above $5 per gallon.
The larger economic concern is what persistently high energy costs can mean for inflation. Energy affects much more than what consumers pay at the pump. Higher fuel and transportation expenses eventually work their way into the cost of moving goods, operating businesses and providing services.
That helps explain why the Federal Reserve continues to move cautiously.
At its July 28-29 meeting, the Federal Open Market Committee left its target range for the federal funds rate unchanged at 3.50% to 3.75%. The Fed specifically noted that inflation remains elevated relative to its 2% goal and cited energy-related price pressures among its concerns.
For real estate, the consequences are significant.
Mortgage rates remain stubbornly high. The Freddie Mac Primary Mortgage Market Survey continues to show 30-year fixed mortgage rates well above the historically low levels buyers experienced just several years ago. Those higher rates dramatically change monthly payments and reduce purchasing power.
The result has been a housing market where transaction activity remains subdued. Existing-home sales data from the National Association of Realtors continues to reflect a market struggling to generate stronger sales volume.
At the same time, many existing homeowners remain reluctant to sell because doing so could mean giving up mortgages secured at significantly lower interest rates.
This does not necessarily indicate weakness in the underlying value of real estate. Instead, we continue to have an affordability and financing problem.
Until inflation moves convincingly lower, the Federal Reserve has limited room to reduce rates aggressively. Until borrowing costs decline meaningfully, housing activity may continue to move sideways rather than experience the stronger rebound many buyers, sellers and real estate professionals have been waiting for.
For real estate, patience continues to be the operative word.
Photo credit D Goug vis Pexels.
