The rising cost of housing is helping to drive inflation, but raising interest rates is exacerbating that problem
t the beginning of the pandemic, Arin Lopez, 47, and Derek Swenson, 35, started thinking about buying a home to get their family out of the two-bedroom apartment they’ve long rented in central Phoenix. But every home they liked had multiple offers over asking price within a day or two of going on the market. So they kept renting, even though their two sons, both under 10 years old, had to share a bedroom.
“It doesn’t seem like this is the American Dream to be this stressed,” says Lopez. The family’s rent, if they stay in their two-bedroom Phoenix apartment, will go up 30% if they decide to renew it in January, to around $2,700. “I’m frustrated with interest rates and I’m frustrated with home prices.” In short, many of America’s 114 million renters are stuck in a vicious cycle. The pandemic created a huge demand for more housing as families needed more space to conduct work and school from home, and as one-time roommates moved away from crowded cities and into their own places. But that demand sent rents soaring. And soaring rents contribute to rising inflation, which in turn has motivated the U.S. Federal Reserve to raise interest rates, thereby influencing mortgage rates.
“It’s a perverse consequence of the fight against inflation,” says Jeff Tucker, a senior economist at Zillow. “The Fed swung to tighter monetary policy, and that policy shift really tipped the cost comparison for people choosing whether to rent or buy.”, released Nov. 11, show this cycle continuing. Inflation was up 7.7% in November over the previous year, and shelter—or housing—contributed to more than half of the rising prices over the previous month.
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