This property in Houlton sold in this August 2020 file photo. Credit: Alexander MacDougall / Houlton Pioneer Times

Crushing inflation, low housing inventory and rising mortgage costs are expected to slow the red hot housing market in Maine and across the U.S., a national economist warned.

The Federal Reserve raised interest rates half a percentage point on Wednesday to tamp down inflation. It was the biggest hike in two decades and one that will ripple down quickly to mortgage, auto and other types of consumer loans.

Mortgage interest rates for a 30-year fixed note have been less than 3 percent for most of the past two years, but they have been rising since February to top 5 percent now. The Federal Reserve’s hike will push them up more, taking home ownership even further out of reach for many Mainers and causing others to wait until prices fall.

“Mortgages now compared to just a few months ago are costing more money for home buyers,” Lawrence Yun, chief economist for the National Association of Realtors, said. “For a median-priced home, the price difference is $300 to $400 more per month, which is a hefty toll for a working family.”

Buying a home now is about 55 percent more expensive than one year ago. Wages have been rising, but rising mortgage rates and inflation will wipe away their benefit, he said. The war in Ukraine and escalating fuel prices also will make housing more unaffordable, he said.

Yun predicted that the higher mortgage rates will slow the U.S. housing market. Other signs that could happen are the five-month decline in pending home sales nationally and a drop in sales for newly constructed single-family homes.

There are signs in Maine that sales already are declining because of low inventory. Single-family home sales were down more than 21 percent in March compared to the previous year, according to the Maine Association of Realtors. Sales declined by double digits in almost all Maine counties. At the same time, the median sales price rose 21 percent to $325,000.

“We continue to experience unprecedented market conditions for Maine real estate,” Madeleine Hill, president of the Maine Association of Realtors, said. “We anticipate the current inventory demand to remain at historic levels through 2022.”

The real estate industry accounted for $14.8 billion or 19.5 percent of Maine’s gross state product last year, making it the biggest contributor to the state’s economic growth.