Owning your own home has long been an aspirational goal for at least half of Americans. Because homes are usually the most expensive thing you will ever buy (unless you are into Lamborghinis or other exotic cars), the decision to buy a home is a big one.

Yes, it was a booming housing market that led to the Great Recession. During the Clinton years, new federal agencies were set up to assist in financing, much as VA loans were created after WWII. Unfortunately, many people bought homes without much if any collateral or skin in the game. Once a property was “underwater” in its value, owners just walked away after 2007, leaving banks with worthless loans. That stressed the entire financial system and led to the collapse of Lehman Brothers. Many large banks to be acquired by others so they didn’t need to close their doors. Even the great Goldman Sachs needed a bailout from Warren Buffett to stay solvent.

This time around, the Federal Reserve has caused grossly exaggerated housing prices. When the world collapsed with COVID, the Fed chose to flood our world with trillions of dollars. They understood that “loose” monetary policy was the only way to restore asset valuations quickly. They inflated the stock market to record highs and did the same to the real estate market by lowering interest rates to near zero.

The price you pay for real estate is a function of several factors: 1. Location is always first: the price reflects how safe and nice is the neighborhood. How good are the schools? How large is the piece of land and how big is the house? 2. What is the cost of the money you will borrow to buy the house and 3. How good is your credit?

Most homebuyers want the most house they can buy for a given monthly payment. That payment is a combination of interest on the loan and some small payment toward the principal amount of the loan spread out over years. Historically, people would get married and buy a house as soon as possible. You pay over your working years so it is paid for when you retire and your income drops off. Other costs include taxes on the property and maintenance.

The present challenge with rising rates has become “affordability.” How much of your income can you safely allocate to housing expense? As the Fed raises interest rates rapidly, the price you can afford to pay for the property you are buying falls just as rapidly. Two months ago, interest rates were below 3%. Now they are approaching 6%. That severely reduces the purchase price you can pay for the property you wish to buy.

Add to that equation available inventory of homes for sale. Far fewer people are leaving Florida than are arriving every day. One survey estimates that 845 new people are moving to Florida each and every day, particularly to our area and to central Florida. Many are escaping the cold but others are coming for the zero income tax rate. Low inventory has been exacerbated by the ban on evictions imposed during COVID.

The Fed has made clear it will continue to raise interest rates as the summer progresses. At some point, it will make new homes unaffordable for many. Some won’t qualify for mortgages as the banks tighten lending policies. Other buyers will simply lose interest in buying at a market top. That’s why I wouldn’t be trying to flip a home just now.

Joan Lappin CFA has been called an “investment guru” by Business Week and a “top manager” by the Wall Street Journal. The Sarasota resident founded Gramercy Capital Management, a registered investment adviser, in 1986. Email JLappincfa@gmail.com. Follow her on twitter: @joanlappin. Her past columns appear at heraldtribune.com/business/columns.

This article originally appeared on Sarasota Herald-Tribune: JOAN LAPPIN: Hot real estate market in Federal Reserve's crosshairs