Housing has become the ‘collateral damage’ in the Fed’s fight on inflation — what you need to know to give yourself an edge in today’s market

Many economists believe Warsh may increase Fed rates later this year, but that’s no more a sure thing than the end of the Iran war.

Josh Jarboe, broker-owner of the REMAX Empire brokerage in Louisville, Kentucky, told Moneywise that all the uncertainty is adding to people’s concerns about buying homes.

He notes that home buyers everywhere are struggling with inflation — but raising Fed rates to slash inflation is a double-edged sword.

“Housing is often collateral damage in fighting inflation,” he told Moneywise.

Here’s a look at why that is and some of the ways home buyers can move past the uncertainty and step onto the property ladder.

Fed rates and consumer confidence

Jarboe noted that while federal rates don’t directly impact mortgage rates the way bond yields do, they do impact buyers in that they affect overall affordability and consumer confidence.

Holding or increasing the Fed rate is designed to keep inflation in check by keeping borrowing rates relatively high — in turn reducing consumer spending.

Jarboe said the impact of a small rate hike of a quarter point may be minimal — resulting in a $5 increase on every $1,000 mortgage payment. But when would-be home buyers hear about any potential rate hike, they get nervous. And they’re already on the sidelines amid the affordability crisis.

“I’m still selling and I’m in the trenches and this market has been unlike anything I’ve experienced,” he said.

Jarboe noted that in Louisville, starter homes that used to sell for $125,000 to $135,000 are now going for $300,000. Factor in the cost of home insurance, with premiums soaring if you’re lucky enough to get it, and buying a home becomes a formidable challenge.

“Everyone is just so squeezed,” he told Moneywise. “Buyers are having cold feet — even the ones who are buying. A lot of people have depleted their savings.”

What home buyers can do in a time of uncertainty

So what can home buyers do in this economic environment? Moneywise reached out to Ryan Hayes, Head of Retail Lending at JP Morgan Chase, to learn more about the options.

It’s not just inflation, mortgage rates and housing supply that affect affordability, Hayes said. It’s each client’s own personal goals and the things they can control. Things like reducing debt and maintaining good credit.