The highest mortgage rates in decades have made it one of the worst times in a generation for U.S. consumers to buy a new home.
About four in five consumers describe buying conditions for homes as bad in November, according to the University of Michigan's consumer sentiment survey, which dates back to 1978. The growing concern over the housing market reflects buyer concerns about higher interest rates as the Fed wages the most aggressive war against inflation since the 1970s.
Painfully high inflation and rising borrowing costs have already proven to be a lethal combination for the housing market, forcing potential buyers to pull back on spending.
A confluence of data released this month shows that the housing market is rapidly deteriorating: Sales of existing homes tumbled in October for the ninth straight month; homebuilder sentiment fell to the lowest level since 2012 in November; and investor home purchases plunged 30%.
Policymakers have voted to approve six consecutive interest rate increases this year, including four consecutive 75-basis-point hikes in June, July, September and November.
At the conclusion of their meeting last month, Fed Chairman Jerome Powell signaled that officials plan to continue raising rates, despite Wall Street's hopes for a pause.
"Let me say this," he told reporters. "It is very premature to be thinking about pausing. When people hear lags, they think about pauses. It's very premature, in my view, to talk about pausing our rate hikes. We have a ways to go."
The average rate for a 30-year fixed mortgage fell to 6.61% this week, according to the latest data released Thursday from mortgage lender Freddie Mac. That is significantly higher than just one year ago when rates stood at 3.10%, although it's down from a peak of 7.08%.
With mortgage rates rising, demand for new homes is rapidly drying up.
Analysts are warning of a rapid slowdown in the housing market, with home prices expected to decline as much as 20%, according to an analysis from Dallas Fed economist Enrique Martínez-García.
Martínez-García said the Fed's efforts to slow housing demand could spill over into the broader economy: A "pessimistic" scenario where the central bank continues to aggressively hike interest rates and prices fall between 15% to 20% could shave as much as 0.5 to 0.7 percentage points from the personal consumption expenditure, a data point that measures inflation-adjusted spending.
"Such a negative wealth effect on aggregate demand would further restrain housing demand, deepening the price correction and setting in motion a negative feedback loop," he warned.