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As the Fed battles inflation, it's harder for low-income workers to buy a home

STEVE INSKEEP, HOST:

What do rising interest rates in this country mean for people who would like to buy a home? Jasmine Howell (ph) would really like to know. She says she escaped domestic violence, spent time in a homeless shelter and now wants stability for herself and her son.

JASMINE HOWELL: I want to have property. I want to have something that I can call my own. I want something to pass down to my kid.

INSKEEP: So she's been trying to buy a house. She got her credit in order, took first-time homeowner classes and worked a second job to save for a down payment. And then interest rates rose.

HOWELL: It seems like I'm getting pushed out. I'm getting pushed out of the housing market and it's becoming impossible for me to build this home that I had in mind for me and my kids.

INSKEEP: Yesterday, the Federal Reserve raised interest rates another quarter point, part of the effort to battle inflation, of course. William Spriggs is watching all this. He is the chief economist for the AFL-CIO and a former chair of the Howard University economics department, where he still teaches. Welcome back to the program, sir.

WILLIAM SPRIGGS: Thank you for having me today.

INSKEEP: OK. I get it. The Fed needs to bring down inflation, which also hurts ordinary people. But what's it do to the home-buying market when interest rates keep creeping up like this?

SPRIGGS: It makes it harder for people to qualify for loans. The payment you have to make is based on the interest rate. Each increase in the interest rate ups the amount of money you have to pay and disqualifies more people.

INSKEEP: Is there an upside, though, in that cooling off the economy a bit and raising mortgage interest rates may also bring home prices down? They've been exceptionally high, of course.

SPRIGGS: While home prices have been flat - they haven't been increasing as much - housing costs in general have been dropping. We don't see it as much in the CPI because there's a lag when it shows up in the CPI - the Consumer Price Index, which is how we measure inflation. But we are going to see results of the fall in housing prices in the next few months show up in our measure of inflation.

INSKEEP: Oh, so you're telling me, I think, that Jasmine may be worried now - the person we heard from a moment ago - but she may have some more hopeful news in a few months. Is that the bottom line here?

SPRIGGS: No, I think she's still in for some turmoil because at these higher interest rates, people who want to buy a home are still going to be stuck with higher housing payments from those higher interest rates.

INSKEEP: OK. So the net for them is worse. Well, let's talk about another aspect of this. Of course, you can't pay the mortgage or the home equity loan if you don't have a job. Higher interest rates are intended, in part, to cool off the job market. Are some kinds of people more affected than others when that happens?

SPRIGGS: Well, yes. People who are entering the labor market need job growth. The Fed has been arguing that people are not entering the labor market. But on the margin, the new job entrants are disproportionately Black and brown. And the labor force participation - the people looking for jobs - who are Black and brown has been recovering to pre-COVID levels faster than we're creating jobs. And so what happens is while they land jobs, a lot of people are still left looking. So the number of people who are unemployed also increases. So over the last four months, the unemployment rate for Hispanics has been going up. And last month, the unemployment rate for Black women went up, even though several more of them landed jobs.

INSKEEP: You are telling me, I think, that even though the overall unemployment rate remains low, there are a lot of people who are entering the work force or who would like to enter the work force, and they are disproportionately being shut out a little bit here as the Fed tries to cool off the labor market. Is that it?

SPRIGGS: That's exactly it. The Fed continues to say the labor market is tight, but the numbers are not consistent with that.

INSKEEP: William Spriggs of the AFL-CIO, thanks very much for your insights.

SPRIGGS: Thanks for having me. Transcript provided by NPR, Copyright NPR.