What you think about Interest rate and housing market in 2023?

housing market price for past years

Hi this is realtor Anil Aggrawal lately lot of people ask me Mr. Anil what do you think about Interest rate and housing market 2023 especially knowing that feds have increased the rates from 2.5 to almost six and more in 2023

This context I will try to pick some topics and info from a book written by “ Allan H. Meltzer A history of the Federal Reserve volume one 1913 to 1951″

We all know in 1973 The United States government left the gold standard so let’s talk about interest rate in early years. Fed interest rate policy earlier was guided by gold standard rates but because of collapse of support for the gold standard it created two problems for the Fed. Fed needed new operating procedures to guide its interest rate policy. Second, they have to deal with the adverse public and political reaction whenever higher interest rates were called for over the business cycle. Mr. Meltzer actually accounts early 20s to show us how fed confronted and tried to resolve these two problems

This is very important knowing that in 1920s we had a Spanish flu and now we are in twenties, we had a COVID flu so what happened in 1920s to 1940 we can learn from that history lessons to create a almost hypothetical scenario about recession and interest rates so in January 1920 to July 21 recession was sharp and deep. Mr. Meltzer reports that unemployment average around 4% to 12% in 1921. The feds index of industrial production fell from 39 in 1920 to 30% 1921 and returned to 39% in 1922. The wholesale index fell from 37% during the recession and that when Great Depression came in 1933.

Throughout U.S. history. there have been four periods of high inflation.

As the chart below illustrates, at least four distinct periods of high inflation have emerged between 1800 and 2010. The GDP deflator measurement shown accounts for the price change of all of an economy’s goods and services, as opposed to the CPI index which is a fixed basket of goods.

According to this measure, inflation hit its highest levels in the 1910s, averaging nearly 8% annually over the decade. Now we are in 2023 and as per feds, inflation is touching. 8-9% Whenever inflation was high, Feds raised interest rates to create recession or reduce inflation so I anticipate that housing interest rates will keep going up (with small dips ) till we bring this down to 3% or seems like it will take decades.

So now lets compare this to housing price index

Housing Price Index

The FHFA House Price Index (HPI) is a broad measure of the movement of single-family house prices. The HPI is a weighted, repeat-sales index, meaning that it measures average price changes in repeat sales or refinancing on the same properties. This information is obtained by reviewing repeat mortgage transactions on single-family properties whose mortgages have been purchased or securitized by Fannie Mae or Freddie Mac since January 1975.

Housing Price Index – USAFacts

U.S. Interest Rates: Historic Highs and Lows

What are the highest and lowest rates throughout history?

Prior to today’s historically low levels, interest rates fell to 1.7% during World War II as the U.S. government injected billions into the economy to help finance the war. Around the same time, government debt ballooned to over 100% of GDP.

Fast-forward to 1981, when interest rates hit all-time highs of 15.8%. Rampant inflation was the key economic issue in the 1970s and early 1980s, and Federal Reserve Chairman Paul Volcker instigated rate controls to restrain demand. It was a period of low economic growth and rising unemployment, with jobless figures as high as 8%.

so, in nutshell I think housing market will take a correction or correct and then again it will go up. Smart investors and home buyers will be ready with property so they can get use little dip in interest rate to lock their home buy and same time enjoy new home, and gain equity in coming years, while saving money from rent, tax refunds from Uncle Sam and lot more.

Any questions, Call me. I am always agile active Agent.

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