Federal Reserve policy and rising mortgage rates impact U.S. housing

The Federal Reserve’s recent monetary policy and rising mortgage rates are creating a divided housing market across the United States. According to the Fed’s October 14 Beige Book, housing demand is weakening in several districts, including Boston, the West, and Chicago, where construction activity has reduced. Conversely, the Atlanta district reported moderate residential growth, though buyers still face difficulties qualifying for loans.

Mortgage rates are influenced by various factors including inflation, job creation, and the 10-year Treasury yield, rather than being set directly by the Federal Reserve. High inflation and energy cost volatility, partly driven by conflicts in Iran, continue to impact borrowing costs. The Mortgage Bankers Association noted a 2.7% decline in total home-loan applications for the week ending October 9.

In the New York district, tight supply continues to support prices, as rising rates incentivize homeowners with low-interest existing loans to remain in their current properties. While some Sun Belt markets offer builder incentives and discounts, the broader trend shows a market where fewer transactions do not necessarily lead to lower median prices.