I don't see how raising interest rates will help when the core issue with housing is the lack of supply. If anything higher rates will make it harder to add more supply.
The Fed can't do anything about housing supply. Mostly it's zoning regulations preventing it, lower mortgages to bring out the buyers might help a little but even when the market was roaring we hardly built anything.
why did this become a issue last 2-3 years. I don't understand this at all. Re raising interest rates will crush demand via job losses, foreclosures, dissuade flippers and property speculators.
Sure if you raise rates enough to cause a recession and massive job loss that would eventually push home prices down but it seems like building more housing would be a simpler, kinder solution.
Raising interest rates doesn't automatically lead to layoffs and businesses closing. It certainly might for faltering or weak companies, but it's not like x% interest rate increase === y% unemployment increase or z% business closure.
> foreclosures
Sure, if you have an adjustable rate mortgage, are massively underwater, and can't afford the new payments. That in and of itself is not a bad thing - if you couldn't afford the house five years ago at 4.5% fixed rate, you couldn't afford it at a 3% ARM either. There's no reason to think an increase in foreclosures would be anywhere close to 2008 levels simply because rates are increased to more historically reasonable levels.
> dissuade flippers and property speculators
Good.