In response to the Federal Reserve’s recent efforts to cool inflation by raising interest rates, the higher cost of obtaining mortgages has slowed down the housing market, the New York Times reported. The increases have added hundreds of dollars a month to the typical mortgage payment in a market where home prices have already been skyrocketing, meaning that some potential homeowners can no longer afford to buy. 

According to the Times, in just a few weeks, real estate agents have gone from managing bidding wars to seeing properties languish without offers. Once-hot markets such as Austin, Texas, and Boise, Idaho, are cooling quickly. 

In the housing market, a delicate balance is required to slow inflation while avoiding a recession. Housing is particularly sensitive to high interest rates. By raising interest rates, which the Fed has done several times this year, it seeks to cool down home prices and new construction in an effort to slow rapid inflation. But this step comes with an inherent risk that the economy will spiral into a recession if it slows home purchases and development activity too much. 

Although the housing market accounts for only a modest amount of economic output, it is a boom-bust industry that has historically played an outsize role in downturns, The Times reported. The housing market runs on credit, and new home purchases are often followed by new furniture, new appliances and new electronics that are important pieces of consumer spending. 

The Times quoted Mark Zandi, chief economist at Moody’s Analytics, who said, “We need the housing market to bend to rein in inflation, but we don’t want it to break, because that would mean a recession.”