Federal Reserve's Rate Decisions Impact Housing Affordability

According to The New York Sun, the U.S. is experiencing a second housing price bubble, with home prices now 77 percent above their 2007 peak. This inflation was largely fueled by the Federal Reserve's unprecedented mortgage asset purchases, which reached $2.7 trillion by 2022, pushing mortgage rates to unsustainable lows.

As mortgage rates rose to between 6 and 7 percent after the Fed stopped expanding its mortgage portfolio, house prices remained high despite a dramatic drop in transaction volume to the lowest levels in three decades.

With current affordability crises, experts like Sean Bobson from the Amherst Group suggest that to return to 2019 affordability levels, house prices would need to fall by 35 percent. The Las Vegas Review-Journal highlights that the issue of affordable housing is not due to a land shortage, noting that developers opt to build expensive homes rather than affordable options.

Overall, the interplay between the Fed's monetary policy and housing market dynamics continues to significantly affect affordability in the sector, as reflected in the ongoing debates surrounding the Fed's independence and its impact on the economy.