Though there are some signs of optimism in the housing market, a lack of affordable supply will likely continue to drive these costs
Nov. 14, 2024
Sam Foster / stock.adobe.com
High housing costs are playing a major role in the current state of inflation.
Rising housing costs are continuing to drive inflation. According to the National Association of Home Builders’ Eye On Housing blog, inflation rose again in October, with shelter costs making up over 65% of the annual increase in the all-items less food and energy index.
Even so, the index for shelter has shown less than 5% year-over-year increases for the past two months, potentially signaling some stabilization. The Federal Reserve’s rate cuts could also offer some relief, but even its recent actions have had little impact on housing prices, which are largely driven by a lack of affordable inventory. Lower interest rates, however, might make financing for construction projects less expensive, and ultimately reduce some strain on housing supply.
Furthermore, the 2024 election result has put inflation back in the spotlight and added some downside risks to the economic outlook. Proposed tax cuts and tariffs could increase inflationary pressures, suggesting a more gradual easing cycle with a slightly higher terminal federal funds rate. Given the housing market’s sensitivity to interest rates, this could extend the affordability crisis and constrain housing supply as builders continue to grapple with lingering supply chain challenges.Read more
