The Fed Creates “Deep Freeze” in the Housing Market

Monday, 11 September 2023


There’s a continuing theme in the broad housing market in the U.S. that home prices will go down and stay down following record highs in the past few years. The theory keeps circulating, but it hasn’t come to fruition so far at any significant level. Data shows that prices are hovering around the same point they were a year ago, and policies coming from the Federal Reserve are likely the reason.

Between May 2022 and May 2023, according to a Fortune report, home prices in the U.S. declined only 0.5%. The data cited by Fortune originated with Case-Shiller. Zillow’s most recent data shows the average value of U.S. homes was $348,853 as of July 28. That’s up 1.2% from the past year.

The numbers show that home prices haven’t moved much over the past year even though there’s been a dramatic and ongoing increase in interest rates Fed Chairman Jerome Powell said he hoped would be a way to “reset” for homebuyers. Instead, it seems the moves coming from the policies put in place by the central bank have essentially frozen prices for a year.

When speaking to the media last fall, Powell said he wasn’t looking at a particular data set when speaking of a reset. Instead, he said the country’s been in the midst of a hot housing market around the country, with houses selling to first buyers at 10% over ask even before they actually saw the house.

Unstainable pricing of homesAccording to Powell, that situation led to an imbalance between supply and demand. He noted that houses were going up at an unsustainably fast level, so the deceleration seen in housing prices he hoped would bring prices more in line with other fundamentals in the housing market. However, the deceleration that showed glimpses of happening last year hasn’t proven sustainable.

Fortune noted that despite the Case-Shiller index showing a decline of 0.5% year-over-year, they’re again rising month-over-month. Prices were up 1.2% between April 2023 and May 2023, after a 1.3% gain between March and April 2023.

The recent uptick in prices is probably because of seasonal demand, at least according to Robert Shiller, a leading economist. Prices often go up during spring as more people are looking to buy houses entering the market.

For buyers, there are a few positive notes. Based on data coming from the St. Louis Fed, average prices of homes sold in the U.S. during the 2023 second quarter was $495,100. That declined from $505,300 during the first quarter,  significantly below 2022’s fourth-quarter peak of $552,600.

At the end of July, the Fed raised short-term rates a quarter of a percentage point as part of ongoing efforts to dampen inflation. As a result, the central bank’s creating a floor under home prices, as mentioned. The federal funds rate went to a range between 5.25% and 5.5%, but before the week’s meeting of the central bank, mortgage rates had already gone up in anticipation of the increase and potentially another in the fall.

Investors had largely anticipated the rise and priced it into current mortgage rates, so a senior economist for Zillow said he didn’t expect it would directly raise rates further.


Unfortunately, by raising interest rates, the Fed is making borrowing more expensive, and millions of people refinanced  between 2020 and 2021 at rates below 5% and sometimes below 3%. The 30-year rate is around 7%, keeping homes off the market.