The housing market is cooling as sales plunge

America is taking a hit. First, it was gas and groceries, and almost everything else. Now, the housing market has gone through the roof.

The average price for a house, recorded last month, was $416,000. That’s 13.4% up from last year, according to a report from the National Association of Realtors. But it was expected.

Fed at work
The Federal Reserve Board is attempting to put the brakes on the worst inflation in 40 years. Consumer prices rose 9.1% in the year through June.

Last month, the board raised its benchmark overnight interest rate by three-quarters of a percentage point—its biggest hike since 1994. 

It is expected to raise it again by 75 basis points during its July 26-27 meeting, say experts.

Stop buying
Simply put, the Fed is trying to make borrowing so expensive that consumers curb spending, hence cooling off demand and holding down prices. And it's working. 

Sales down
Sales of previously owned homes were down 5.4% in June from May and 14.2% from last year. 

“Falling housing affordability continues to take a toll on potential homebuyers,” said Lawrence Yun, NAR’s chief economist. 

“Both mortgage rates and home prices have risen too sharply in a short span of time,” he said.

Not the end
The decline in sales is likely to deepen further, Lawrence said.

Mortgage rates in the interest-rate-sensitive housing market are going to go up, says Matthew Pointon, a property economist at Capital Economics, adding that those rates won’t peak before the middle of next year.