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Low What: Inflation

Down What: Housing Market

The United States is currently experiencing a period of low inflation and a down housing market. The Federal Reserve has been successful in keeping inflation low, which is reflected in the Consumer Price Index (CPI) remaining below the 2% target for an extended period. This low inflation environment has been beneficial for consumers, as it allows for more purchasing power and stability in the economy.

However, the housing market has seen a downturn, with home prices and sales volumes declining. According to the National Association of Realtors (NAR), existing home sales fell by 2.8% in June 2023, marking the fourth consecutive month of decline. The median existing-home price also decreased by 1.9% from the previous year, reaching $391,200. This downward trend in the housing market can be attributed to several factors.

Firstly, rising interest rates have made mortgages more expensive, which has deterred potential homebuyers. The Federal Reserve has raised interest rates multiple times to combat inflation, leading to higher borrowing costs for consumers. According to Freddie Mac, the average 30-year fixed mortgage rate was 5.81% as of July 2023, up from 3.09% a year earlier. This increase in interest rates has made it more difficult for buyers to afford homes, particularly in high-cost markets.

Secondly, the supply of homes for sale has been constrained, further exacerbating the downward trend in the housing market. The NAR reported that the inventory of homes for sale decreased by 2.3% in June 2023, with the current supply of homes at a 3.3-month supply. This low inventory is a result of several factors, including a decrease in new construction and a reluctance among homeowners to sell due to the uncertainty in the market.

Lastly, the economic impact of the COVID-19 pandemic has also played a role in the downturn of the housing market. Many homeowners have delayed selling their homes due to the pandemic, and the overall economic uncertainty has led to a cautious approach among potential buyers.

In conclusion, the United States is currently experiencing low inflation and a down housing market. While low inflation is beneficial for the economy, the downturn in the housing market is a concern for both consumers and the broader economy. The factors contributing to the housing market downturn, including rising interest rates, constrained supply, and economic uncertainty, highlight the need for a balanced approach to address these challenges.