My mortgage is a problem for the Fed, and for America 

The mar ket is frozen and afford ab il ity is as ugly as it was in the hous ing bubble

 Financial Times Europe 3 Oct 2026 Robert Armstrong robert.arm strong@ft.com 

I bought my house in Brook lyn in 2020, using a 30-year fixed-rate mort gage priced at 2.75 per cent. Since then, infla tion and a strong eco nomy have driven the aver age rate for a 30-year fix well above 7 per cent. So I enjoy a big lump of way-below mar ket fin an cing while the value of my home has kept up with infla tion or bet ter, if online valu ation tools are to be believed. I feel very smug about this, but it’s bad for the coun try, and it’s not all good for me. Unless things change, I’m locked into the place until I die or turn 79, whichever comes first. Downs ize when the kids leave? Move for a great job offer in another city? Nope. Both would leave me poorer. Mort gages like mine are the reason why US home prices are very “sticky down.” When the eco nomy is strong or money is cheap, houses get more expens ive fast. When con di tions reverse, rather than adjust ing to the new real ity, homeown ers simply refuse to sell, redu cing sup ply. The mar ket, rather than adjust ing, freezes. Exist ing home sales in the US are stuck at about 4mn units a year, the same mea gre level as after the hous ing bubble burst in 2008. At the same time, aver age home prices have been stable in infla tion-adjus ted terms since mort gage rates star ted their climb in early 2022.

As a res ult, the Atlanta Fed’s home afford ab il ity meas ure, which com pares median incomes to median home prices, is as ugly as it was at the height of the hous ing bubble in 2006. Young people think home own er ship is increas ingly out of reach, and they’re right. The median age of first-time home buy ers has recently hit 40. Look ing for an explan a tion for why con sumer con fid ence sur veys have remained weak — the Con fer ence Board’s meas ure just hit a 12-year low — even as the eco nomy has recovered strongly? Hous ing is the place to start. A part of the eco nomy we are all acutely aware of is not work ing. This is not just ter rible for the young. It is a drag on the eco nomy as a whole, both because of for gone activ ity asso ci ated with home sales and because of lost dynam ism. People locked into their houses don’t switch to more pro duct ive jobs else where (house holds’ expect a tions of mov ing are at all-time lows). High unful filled demand might seem like an oppor tun ity for home build ers, but hous ing starts have been fall ing since 2022, and home builder con fid ence is in the dumps. In recent years build ers have used sub sid ised fin an cing to entice buy ers, but the latest leg up in rates makes this more expens ive. 

Mean while builder input cost infla tion leapt to about 8 per cent this spring, and stayed there. On the labour side, the prob lem isn’t so much cost as avail ab il ity. The August home builder sur vey from John Burns Research notes that labour short ages are lead ing to longer build ing cycles, a prob lem many build ers attrib ute to immig ra tion enforce ment. “There are a lot of home build ers that were already on thin ice on profi t ab il ity,” before rates and costs began to rise again, says Rick Pala cios of Burns. “When profit mar gins get into mid-single digits, that is a nat ural nudge for them to slow con struc tion.” Yet des pite hous ing con trib ut ing almost noth ing to real GDP growth this year and last, the eco nomy con tin ues to grow. In fact, it may be over heat ing, which is why the Fed just raised interest rates. But there’s a prob lem. Tra di tion ally, the rate-sens it ive hous ing sec tor has been a — or the — prime chan nel for the trans mis sion of mon et ary policy. 

As the eco nom ist Edward Leamer put it two dec ades ago, “hous ing IS the busi ness cycle”: it’s not the biggest sec tor of the eco nomy, but it is the cru cial swing factor. Not so today. Higher rates will only pres sure a sec tor that is already on its knees. The swing factor today is, instead, tech invest ment and the stock mar ket wealth it has brought in its wake. On one estim ate, AI invest ment con trib uted a full per cent age point to real GDP growth in the second quarter, a fig ure that seems unlikely to fall this quarter. And this invest ment is not — for now — rate sens it ive. The richest com pan ies in the world have decided that AI com pet it ive- ness is an exist en tial require ment. Addi tional interest expense pales com pared to what they have absorbed in higher sil icon prices. What is the Fed to do? Admit the reduced potency of their primary policy tool, hold rates steady and risk infla tion run ning higher? Or hit hous ing and other cyc lical sec tors even harder, cre at ing an even more lop sided eco nomy? Both horns of this dilemma are dan ger ously sharp. The pre val ence of the 30-year fixed- rate mort gage is, in large part, a policy choice. It is propped up by sec ond ary- mar ket sup port and guar an tees from gov ern mentsponsored entit ies Fan nie Mae and Fred die Mac. 

So our hous ing dilemma is a reminder, if we needed one, that gov ern ment inter ven tion in fin an cial mar kets always comes with trade-offs. But whatever its vir tues and vices, the 30-year fix is going nowhere; Amer ica would sooner abol ish fire works on the Fourth of July. The only long-term solu tion is mak- ing it cheaper, easier and faster to build homes. This year’s pas sage of the bipar tisan Road to Hous ing Act added some incent ives and cut red tape, but there is much more to do. As elec tion sea son heats up, voters should be ask ing can did ates what they plan to do to help aspir ing homeown ers. People like me are lucky enough already.