The agitated March 18 comments by Federal Reserve Governor Christopher Waller, who said that one or more Federal Funds rate increases of 0.5% each are needed this year because of “raging inflation,” highlight the bind the Fed is in.
St. Louis Fed president James Bullard has also called for half-point increases, and the Federal Open Market Committee as a whole voted for seven quarter-point increases this year in their meeting March 15-16. But at the same time, their forecasts for U.S. economic growth headed sharply lower, quite opposite to their forecasts for inflation.
February sales of existing homes, reported on March 18, showed the median price at which existing home sales were closed in February to be 15% higher than a year earlier, according to the National Association of Realtors (NAR). The average price is 19% higher. But the sales themselves were 2.4% fewer than the previous February; they have fallen year-to-year for seven consecutive months. Not only are the prices going too high; so are the mortgage interest rates. The average 30-year mortgage rate, now at 4.5%, is already 1.25% higher than it was when those dropping February sales were contracted.
The average monthly mortgage payment around the country is a shocking 28% higher than a year ago. The NAR, in reporting it, noted that it is not a component of the consumer price index! A serious unaffordability crisis may soon make home prices plateau and drop, threatening a crash of mortgage and mortgage-backed securities as in 2007-08.
