It Will Take More Than Low Interest Rates To Make Houses Affordable
On Tuesday, the yield on the 10-year Treasury surged nearly 10 basis points in a few hours, rising above 4.49 percent. The rising yield came after the release of new price-inflation data showing that CPI growth had hit a five-month high and remained well above the Federal Reserve’s two-percent target for price inflation. Rising yields often indicate that bond investors believe price inflation will continue to grow, so it was probably no coincidence that bond yields—especially on longer-term bonds—jumped following the report’s release.
Whatever the reason behind the rising yield, this is bad news for those who were looking for a good reason to believe that mortgage rates will significantly fall again soon. Mortgages for single-family homes closely follow the 10-year yield, and, as the 10-year yield has risen in recent years, the average 30-year mortgage more than doubled. Ity rose from under three percent in mid 2021 to above seven percent by late 2023. It has remained above six percent ever since.
Meanwhile, home prices continued to rise well into mid 2025. This combination of rising home prices and rising mortgage rates has made housing unaffordable for a growing share of propsective homebuyers.
In response to this trend, The Trump administration’s FHFA Director, Bill Pulte—a scion and nepo baby from a wealthy family of homebuilders—has demanded that the central bank intervene to force down mortgage rates in order to stimulate residential home sales and home prices. Pulte claims that Fed chairman Jerome Powell’s lack of enthusiasm for lowering interest rates is “the main reason” that there is not more home-sales activity. Pulte concludes that Powell is “hurting the mortgage market” by “improperly keeping interest rates high.” Pulte apparently believes that more people would buy homes if only the Fed fixed the situation with lower interest rates.
When the Fed intervenes to lower interest rates, monetary inflation is required. To demand lower interest rate policy—as Pulte is doing—is to demand more inflation. At the core of this inflationist position is the misconception that rising home prices—and their negative effect on homeownership—can somehow be “fixed” or rendered irrelevant by lower interest rates. This is not how things work, however. Even if mortgage rates were to go down again, rising prices mean homeowners would still be stuck with higher costs and higher property taxes that result from rising prices. Moreover, Pulte is wrong to even assume that Fed intervention via the policy interest rate would somehow, magically, bring down 30-year mortgage rates.
Problems with Rising Home Prices
Last week, we explored the many ways that the Federal Reserve’s monetary policy and asset purchases have fueled rising home prices. There is a close correlation between the central bank’s purchases of mortgage backed securities, the falling federal funds rate, and rising home prices. Falling interest rates have fueled rising home prices. This has led to historic lows in the affordability of homeownership, and a rising average age for home owners.
As home prices have risen, homes have become less affordable. Notably, the median home price has become much larger over time, when compared to the medi
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