Housing affordability is now the most urgent issue facing Americans, as former HUD Secretary Shaun Donovan said at last week’s Housing America’s Summit. Our nation’s housing market has become increasingly unaffordable amid record high prices and mortgage interest rates. Unfortunately, many families continue to bend under the burden of rising costs. Increasing cost pressures are placing new car buyers in a real bind. Among them, one in five now have monthly payments over $1,000 — an all–time high.
Adding to the stress on household budgets, the median home price recently hit an all-time high in June. Influential figures in the political landscape, including former President Donald Trump, have criticized the Federal Reserve’s approach under Jerome Powell. Unsurprisingly, Trump has been vocal about calling for aggressive interest rate cuts, claiming that the current rate levels are stifling economic growth and worsening the Nation’s housing crisis.
Trump emphasized his stance by stating, “Housing in our Country is lagging because Jerome ‘Too Late’ Powell refuses to lower Interest Rates.” He has vocally favored a deep cut of as much as three percentage points. This action is focused on getting our economy moving again and making it more affordable for families.
Jerome Powell has shown sign of being averse to interest rate cuts. He added that the Fed should have already lowered rates. Ongoing unknowns and inflationary risks related to Trump’s tariff policies call for a more sober approach. Since December, the Federal Funds Rate has held firm at a range between 4.25% and 4.5%. Yet this stability has inadvertently trapped a majority of borrowers in a bind.
Additionally, excessive home prices and high mortgage rates still pose a challenge to the housing market at large. Those conditions are creating a dry market to walk through, noted Eugenio Aleman, chief economist at Raymond James. Bankrate The average rate for a 30-year fixed-rate mortgage, according to Bankrate, is now 6.8%. At this current rate, homeownership is becoming increasingly out of reach for many Americans.
Aside from housing catastrophes, consumers are increasingly squeezed in the car market. The average rate for a five-year new car loan has actually risen to an average of 7.22%. Ivan Drury, director of insights at Edmunds, remarked on this trend: “Consumers are continuously stretching to afford new vehicles in this market.” This mood is illustrative of the overall economy, with households rearranging their budgets to make room for increased payments.
Credit card debt remains a serious hurdle as well, with nearly all credit cards using variable rates that average a little more than 20%. Greg McBride, chief financial analyst at Bankrate, previously pointed out that rates on credit cards have been high. He stated, “Credit card rates have been in a holding pattern at a very elevated level,” indicating that borrowers face continued financial strain even outside of housing and automotive purchases.
Amidst these challenges, McBride highlighted a silver lining for savers: “It’s not a good time to be a borrower, but it’s a great time to be a saver — lean into that.” This view from the trenches further highlights the need for tactical fiscal management in precarious economic periods.
As Columbia Business School economics professor Brett House tells my colleague Jim McKinney, low rates can’t compensate for bad policies that hurt consumers. He points out that this doesn’t ensure that loans will have lower rates. He explained, “There is no guarantee this would translate into lower rates.”
As the Federal Reserve considers its next steps in the face of persistent economic headwinds, all at a time when American families are facing juggernaut inflation with high prices and limited affordable options. Policymakers are clearly under enormous pressure to find the right balance between containing inflationary risks and keeping credit widely available. They’re just as intent on addressing the urgent challenges we find ourselves in today.