Fed rate hike bad news for consumers as housing crisis persists

The Federal Reserve raised its benchmark interest rate on Wednesday by one-quarter of a percentage point, which could add new obstacles for homebuyers in an already challenging housing market environment.

“Homebuyers are already being challenged because of the rising home prices – much faster than income growth – but the added push of interest rate growth is a double-whammy for consumers,” Lawrence Yun, chief economist and senior vice president of research at the National Association of Realtors (NAR), told FOX Business. “It’s not good news for consumers.”

The NAR said home prices rose in April, marking their 74th month of consecutive year-over-year gains. The median home price was $257,900 in April, up more than 5% from the year prior.

Adding higher mortgage rates to that picture could put homeownership out of reach for some buyers on the margin. A rate hike on Wednesday marks the central bank’s seventh since the end of 2015.

However, rising mortgage rates may not be a “housing market showstopper,” according to Robert Dietz, chief economist at the National Association of Homebuilders, thanks to the after-effects of the Tax Cuts and Jobs Act.

“We know rates are going up – it’s going to affect affordability, but incomes are rising, after-tax incomes are rising,” Dietz told FOX Business. “If rates go up because [the positive effects of] tax reform made interest rates rise, that’s a positive.”

The real challenge in the market right now, he said, is a lack of inventory.

“It is the defining characteristic of the housing market … I expect it to continue to be for the rest of this economic cycle,” North said.

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