Why the Federal Reserve Matters to Ordinary Americans, in One Amazing Chart: The Morning Brief

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Friday 20 May 2022

Today’s newsletter by Miles Odland, Senior Markets Editor at Yahoo Finance. Follow him on Twitter Tweet embed and on LinkedIn.

For the general public, the Federal Reserve can be a frightening and mysterious topic.

You might ask, why do so few Washington DC economists think that the right level of interest rates should really matter?

And while we believe that there are many reasons why the central bank’s role in everyday life is underappreciated, a Report from the real estate brokerage company Redfin Import interest rates put into stark relief.

During the four-week period ending May 15, the average monthly cost of servicing a mortgage for an average asking price home nationwide increased 43.4% over the same period last year, according to Redfin data.

That jump resulted in the following graph, a stark visual spectacle that represents the unprecedented increase in the cost of home ownership this year.

The monthly cost of buying a median-priced home in the US has risen more than 40% this year amid a hike in interest rates.  (Source: Redfin)

The monthly cost of buying a median-priced home in the US has risen more than 40% this year amid a hike in interest rates. (Source: Redfin)

In simpler terms, higher interest rates make it more expensive to borrow money. The primary way most consumers react to these costs is by purchasing a home.

Specifically, higher interest rates lead to higher mortgage rates, which leads to higher personal costs for purchasing the same home.

Housing prices are certainly going up and playing some part in these costs. During the same four-week period ending May 15, according to Redfin, the median asking price for US homes rose 17.9%. But the rise in home prices in mid-teens has been around the national norm since the post-Covid home buying frenzy started in earnest during the spring of 2021.

Moreover, more consistent policy from the Federal Reserve throughout 2021 has made absorbing these increases easier for buyers.

The average 30-year fixed-rate mortgage in May 2021, for example, was about 3%; By December 2021, the average fixed-rate mortgage rate for 30 years is still at about 3%. This stable environment for homebuyers made adjustment to price hikes more predictable for consumers, and a strong housing market in 2021 resulted in the emergence of the market. Beginning of 2022 with record low stock.

However, the average 30-year fixed rate mortgage increased from 3% to about 5.25% during the first 5 months of 2022 – the highest rate since 2009.

And the suffering of potential buyers may not be finished yet.

Last year, the Fed was still of the opinion that any inflation pressures would prove “temporary,” and the central bank kept interest rates near 0% as a result. As readers know well, A few months ago now It was close to its highest in four decades. In the face of these price changes, The Fed changed its tone.

So far this year, the Fed has raised interest rates in two meetings, Latest 0.50% The biggest one-day increase since 2000. The Fed is expected to raise interest rates by the same amount in June and July. The rise in mortgage rates is both responding and anticipating to these changes from the Federal Reserve.

Overall, with financial markets anticipating at least another two percentage points of interest rate increases from the Federal Reserve during this rate-raising cycle, the difficulties for homebuyers may not be closer to the end than the beginning.

What are you watching today



Before being put on the market

  • Booz Allen Hamilton (BAH) Expected to report adjusted earnings of 85 cents per share on revenue of $2.2 billion

  • derry (DE) Expected to report adjusted earnings of $6.70 per share on revenue of $13.24 billion.

  • foot locker (Florida) Expected to report adjusted earnings of $1.53 per share on revenue of $2.19 billion.

after market

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