The Fed Says the Housing Market Needs a 'Correction.' What Does That Mean?
When the Federal Reserve announced it was raising interest rates last week, Chairman Jerome Powell said the housing market needs to go through a “correction.”
Powell said home prices rose at an “unsustainably fast level” during the pandemic, as he expressed hope that a housing market correction will make prices affordable again.
The Fed is hiking interest rates in order to (hopefully) rein in high inflation. When interest rates rise, it becomes more expensive to borrow money. Among other things, this means that mortgage rates are rising, and buyers are finding that purchasing a home is the opposite of affordable.
The real estate market in general has been cooling down for months, and experts say bigger changes could be coming, in the form of a correction period that would eventually result in lower prices and more homes for sale.
What is a housing market correction?
Danielle Hale, chief economist for Realtor.com, said the word “correction” doesn’t have a numerical meaning in the context of real estate.