Fight against inflation derails single-family housing. The pandemic and ensuing lifestyle changes dramatically impacted the single-family market. A rush of people sought larger living options to accommodate at-home work and education. Exceptionally favorable financing fueled the market, resulting in a massive squeeze of listing inventories. With more people seeking homes than the market could service, prices rose at a staggering pace. When the Federal Reserve stepped up its fight against inflation by aggressively raising the overnight rate by 225 basis points through July, however, it triggered a mortgage rate surge and the housing market took a hit. The average rate for a 30- year fixed-rate mortgage surpassed 5 percent in the second quarter, the highest mark since the Global Financial Crisis. Additional Fed rate hikes may put even more pressure on the cost and criteria to obtain a home mortgage, condensing the buyer pool and cooling the hot sector.

Slowdown in home purchasing does not signal a bursting bubble. Potential buyers of single-family homes are facing lofty prices, simultaneous with decade-high mortgage rates, making entry challenging for first-time buyers. At the same time, many existing owners are locked into more favorable mortgages established when rates were very low in 2020-2021, reducing their incentive to move up the quality stack. As purchase activity wanes, some markets may endure a near-term price softening. However, in most metros the number of homes available for purchase remains well below historic norms, serving as a buttress for values. These dynamics and a healthy labor market imply that recent trends are not indicative of a bubble ready to burst.

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