Fed Chair Jerome Powell's speech dims rate outlook for Long Island homebuyers
Federal Reserve Board Chairman Jerome Powell said Friday the agency is prepared to raise interest rates higher — and hold them there — to bring down above-target inflation. Credit: AFP via Getty Images / Saul Loeb
Long Island homebuyers hoping mortgage rates will drop — reversing recent increases and making it easier to afford monthly housing payments — received bad news Friday from Federal Reserve Chair Jerome Powell
Powell said the Fed would be willing to raise its benchmark interest rate further to control inflation, as necessary, as the U.S. economy has not cooled as fast as expected. The Fed has raised its benchmark interest rate 11 times since 2022. Those hikes have boosted that rate to its highest level since 2001, making it more expensive to borrow money through mortgages, car loans and credit cards.
“Although inflation has moved down from its peak — a welcome development — it remains too high,” Powell said during a speech Friday in Jackson Hole, Wyoming, at a meeting of central bankers and economists. “We are prepared to raise rates further, if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”
The Consumer Price Index, a measure of price stability across a large swath of goods and services, increased 3.2% in the 12 months ending in July. The Fed aims for 2% inflation annually over the long term. Inflation peaked at an annual rate of 9.1% in June 2022, which was the highest in 40 years.
WHAT TO KNOW
- Jerome Powell, chair of the Federal Reserve, said the central bank is "prepared to raise rates further, if appropriate" until it sees signs inflation is moving sustainably lower.
- The Fed's policies have contributed to the highest mortgage rates since 2001.
- Housing experts said rates have yet to have a meaningful effect on local home prices because there are still more interested buyers than homes for sale.
The Fed’s campaign to get prices under control has led to a stark increase in mortgage rates. The average rate for a 30-year fixed home loan was 7.23% for the week ending Thursday, its highest level since June 2001, according to mortgage giant Freddie Mac.
Powell’s comments were anticipated by investors and are unlikely to have a sizable effect on interest rates immediately, but they suggest rates could remain high “for an extended period of time. At least through the middle of next year,” barring a recession, said Cris deRitis, deputy chief economist at Moody’s Analytics.
That means Long Islanders who bought a house in the past year with an interest rate above 5% might need to wait before they will be able to refinance their loan and lower their monthly payments.
DeRitis said the firm’s most recent economic forecast predicts U.S. home prices will fall about 4.5% between now and early 2025. That would represent a small retreat from the approximately 40% surge in U.S. home prices since 2020, according to Moody's Analytics.
The decline in affordability "has to, at the end of the day, have an effect on the demand and the amount potential buyers are able to spend," deRitis said.
He said one key factor that could change dynamics in the housing market is future weakness in the labor market. The U.S. unemployment rate was a low 3.5% in July.
So far, the Fed’s rate hikes haven't changed the dynamic between buyers and sellers on Long Island much.
The number of homes sold in July across Long Island was 23% below the same figure a year earlier. But the median price of a home in Nassau County hit a record $725,000 and Suffolk County matched its record median sale at $575,000.
Larry Matarasso, a senior mortgage consultant at CrossCountry Mortgage in Jericho, said with inventory far below usual norms, there is still competition for homes. He worries the upcoming restart of required federal student loan payments in October could knock buyers out of the market to buy a house.
“All of a sudden you have to make a $500 a month payment for a student loan. Are you going to be as eager to line up at an open house or overbid on a house?” he said.
Angela Prince, a real estate broker who leads a team of agents at Weichert Realtors in Bay Shore, said Long Island’s lack of homes for sale is severe and higher mortgage rates could worsen the situation. She believes homeowners might hold tighter to their existing loans and resist putting their homes on the market.
“There’s still more buyers than there are houses to sell, so you’re still in a sellers’ market,” Prince said.
Jonathan LaMantia covers residential real estate and other business news on Long Island. He previously covered the business of health care for Crain's New York Business.
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