February existing home sales registered at a seasonally adjusted annual rate of 4.02 million units — the lowest February reading since 1995, and 18% below year-ago levels. [1] The mortgage rate that caused this is 7.41%, and the Federal Reserve created that rate through its own inflation misjudgment and the structural repricing of US fiscal risk. [2] The housing market is not in correction. It is in a trap.

The mechanism is not demand destruction in the traditional sense. Affordability has collapsed not because prices are falling — they are not, down only 3% from peak nationally — but because the financing cost of buying has become disconnected from what buyers earn. A household earning the median first-time buyer income of $87,000 a year needs a down payment, closing costs, and a monthly payment that, at 7.41% on a 30-year fixed with 20% down on a median-priced $412,000 home, runs approximately $2,400 before property taxes, insurance, or maintenance. [3] The Federal Housing Finance Agency qualifying standard requires total debt service not exceed 43% of gross income. That standard cannot be met on median income for a median-priced home at current rates.

The inventory freeze is the deeper problem. Existing homeowners with sub-4% mortgages have a financial disincentive to sell their home and take on new financing at 7.41%. This is not a behavioral observation — it is an arithmetic observation backed by the data. Active listings are down 22% year-over-year. [4] The homeowners who would be sellers in a normal market are locked in place. The homes that are available are either distressed sales, inheritances, or relocations where the buyer is buying before selling and needs the liquidity.

The first-time buyer, who conventional housing economics treats as the engine of the market, is effectively priced out of the transaction. The National Association of Realtors has documented the generational wealth transfer this represents: homeowners aged 65+ have the highest rate of home ownership in US history. Their children cannot afford to buy near them.

The Fed's rate trap is the direct cause, and the Fed cannot easily escape it. Cutting rates risks signaling tolerance for above-target inflation — and the bond market has already priced in the expectation that the Fed will not cut quickly or far. [5] Holding rates preserves the lock-in effect and continues crushing the housing market. The 7.41% mortgage is not a policy outcome. It is a policy verdict.