Fed's Barr says more rate hikes are likely as home affordability hits a 21-year low

Federal Reserve Governor Michael Barr said Wednesday that he expects the Fed to raise interest rates again. "In my base case, further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion," he said in prepared remarks for a housing summit hosted by the Chicago Fed. Barr supported last week's hike and said that before it, "we were out of position."

His summary of the economy was blunt: growth is strong and the labor market is solid, but inflation is above 2% and "not clearly trending toward target in a timely way," and the risks to inflation have risen while the risks to jobs have receded. After his remarks and a hot S&P Global flash survey, the odds of a quarter-point hike in October rose above 60% on the CME FedWatch tool, CNBC reported, from 8.8% a month ago. The 10-year Treasury yield touched 5.058%, its highest since July 2007. Our market story: 10-year hits 5.06%.

The part of the speech most coverage skipped

The rate line made the headlines, but the speech itself was about housing, and Barr's numbers explain why a hiking Fed and a housing shortage are colliding:

• Affordability: the Atlanta Fed's Home Ownership Affordability Monitor fell to 68 in July 2026, the lowest in 21 years. Below 100 means a median-income family cannot afford a median-priced home at current mortgage rates.
• Lock-in: about half of all mortgages carry a rate of 4% or lower and nearly 80% are below 6%. Owners with those loans are less likely to sell, which keeps listings scarce.
• Supply: estimates put the housing shortfall at roughly 2 million to 5.5 million units, 1% to 4% of a stock of about 150 million homes.
• Building costs: the Census Bureau's constant-quality price index for new single-family homes rose roughly 40% from 2020 to 2025, and the number of homebuilders halved from 98,000 to 49,000 between 2007 and 2012.
• Rent: the CPI for rent of primary residence in August was 34% above December 2019, and shelter prices are still rising at about 2¾% a year.

On what the Fed can do about mortgage rates, Barr noted that "some ask" and gave a limited answer: short-term policy rates affect longer-term borrowing, "but many other things affect mortgage rates as well," and mortgage rates are generally lower when inflation is lower. In other words, the Fed's path to cheaper mortgages runs through higher short-term rates first.

Who it hits

Someone closing on a house this fall. Freddie Mac's 30-year average was 6.95% in the week of Sept. 17, up from 6.71% on Sept. 3. On a $400,000 loan, that 0.24-point move is about $64 a month in principal and interest ($2,648 versus $2,584, our calculation). A governor saying more hikes are likely is not a signal that the next move in that number is down.

Builders and remodelers. Barr's list of causes, local zoning, flat construction productivity since 1987, skilled-labor shortages and higher insurance and property taxes, does not change with the fed funds rate. Higher rates slow buyers, but they do not bring down the cost of building a home. For a contractor, that can mean softer buyer demand without a matching drop in input costs.

Landlords and renters. With about half of renters paying 30% or more of income on rent, Barr's figure, and a quarter paying at least half, the room for rent increases at renewal is thin even as a landlord's own borrowing costs rise.

The next data that could change his view are the Oct. 2 jobs report and the Oct. 14 CPI, per our calendar. Rates: 10-year T-note chart.

Sources: Federal Reserve Board, Governor Barr speech, Sept. 23, 2026; CNBC; Freddie Mac PMMS. Payment figures are our calculations for a 30-year fixed loan. This is market information, not investment advice.