‘I lost bidding war after bidding war’: If interest rates are so high, why have house prices not declined?

The process of buying a home can be painful, and the unpredictable and counterintuitive dynamics of the current real-estate market don’t help.“It was a hellish experience,” Odeta Kushi, who bought a home last year in the D.C. metro area with her husband. One of the homes she had bid on ended up receiving 19 other offers. “That was a house that I really loved,” she said.

“I lost bidding war after bidding war,” she told MarketWatch, “because I knew exactly what I was going to pay.” Buying a house is an emotional experience, so it can be harrowing to pass up on a house you have set your heart on. “I had a lot of heartbreak in the housing search because you get attached to these homes,” Kushi added.

Home sales are falling, mortgage rates are at the highest level in 22 years, yet the market is still out of reach for many: Home prices are still high, with the median price of a resale home over $400,000. Compounding that problem, buyers have fewer home listings to choose from. They turn to builders, who offer new homes and even mortgage-rate buydowns to make owning a home a little less expensive. But builders can’t meet all of the demand. They also don’t want to overbuild, having been bit once during the Great Recession.

Given that rising home values broadly affect how housing costs are calculated in the government’s inflation measures, some economists fear that the resilience in home prices mean that there’s still a long way to go before the U.S. economy cools off. The cost of “shelter” or housing is one of the key components the Federal Reserve uses to measure inflation. One of the Fed’s key tasks is to maintain inflation at a low and steady pace — it has a 2% target — so any major increase in the cost of living will provide more incentive to raise rates.

But by October of 1982, inflation had fallen to 5%, she added. The Fed allowed the Fed funds rate to fall, and as a result the 30-year mortgage rate fell too.

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