The Fed’s inflation fight isn’t over—that’s bad news for housing market affordability

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This week Fed Chair Jerome Powell suggested that the central bank’s inflation fight could take longer than previously expected.

“More recent data shows solid growth and continued strength in the labor market, but also a lack of further progress so far this year on returning to our 2% inflation goal,” Powell said on Tuesday while speaking at the Washington Forum. “The recent data have clearly not given us greater confidence, and instead indicate that it’s likely to take longer than expected to achieve that confidence.”

Powell pointed out that progress made on the disinflation front—meaning a decelerated rate of consumer price growth—in the second half of 2023 hasn’t carried over into early 2024.

Powell then added: “We can maintain the current level of restriction for as long as needed.”

The “higher for longer” sentiment has been shared by analysts on Wall Street, who, in recent months, have reduced their forecast for 2024 rate cuts. This has also coincided with a bounce back up in mortgage rates.

On Tuesday, the average 30-year fixed-mortgage rate as tracked by Mortgage News Daily hit 7.5%. That’s the highest mortgage rate reading in 2024, and the highest level since November 13, 2023.

The recent rise in mortgage rates also means that housing affordability remains strained.

When taking into account mortgage rates, house prices, and income levels, housing affordability today is around the worst levels since the mid-’80s.