Housing Inventory, Number of Active Listings (blue line) Median Sales Prices of Houses Sold (red line) (Source: Census, HUD, Realtor.com through Federal Reserve Economic Database (FRED))
Interest Rates The Federal Reserve strongly influences interest rates in the U.S. economy through targeting the fed funds rate, a very short-term interest rate, which is the overnight borrowing rate between banks. The Federal Reserve can sell bonds of varying maturities from its portfolio of Treasury securities, which takes money out of the financial system and can also put upward pressure on long-term interest rates as bond prices decline with the sale of bonds. Rising interest rates negatively affect interest rate sensitive business investment and consumer purchases as financing costs increase. When the Federal Reserve changes the fed funds rate, there is typically a rippling effect through the financial markets. This relationship is demonstrated in the chart below, which shows the effective federal funds rate since January 2020 (blue line) relative to the 30-year fixed rate mortgage average (red line). In March 2022, the Federal Reserve began the upward trek for interest rates, with eleven rate increases occurring through November 2023. Note that when the Federal Reserve raised the fed funds rate the 30-year fixed rate mortgage average correspondingly increased. Effective Federal Funds Rate (blue line) 30-year Fixed Rate Mortgage Average (red line) (Source: Board of Governors Federal Reserve System, Freddie Mac)
Central Wisconsin Report - Spring 2023
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