Three top housing groups call on Federal Reserve Chair Jerome Powell to stop increasing interest rates as the industry struggles with “a historic shortage of attainable housing.”
In a letter dated Oct. 9, the Mortgage Bankers Association, the National Association of Realtors, and the National Association of Home Builders expressed “a profound concern” with the central bank that “that ongoing market uncertainty about the Fed’s rate path is contributing to recent interest rate hikes and volatility.”
The move comes as the Federal Reserve has increased interest rates 11 times since March 2022 in an effort to combat inflation.
The groups pointed out that the rate hikes pushed by the Fed “has exacerbated housing affordability and created additional disruptions for a real estate market that is already straining to adjust to a dramatic pullback in both mortgage origination and home sale volume. These market challenges occur amidst a historic shortage of attainable housing.”
They cited data saying that mortgage rates reached 23-year highs, dragging down housing market activity “and resulting dislocation in our industry is painful and unprecedented in the absence of larger economic turmoil.”
The groups also blamed increasing shelter costs as a source of high inflation. In September, shelter costs, which include rent and mortgage payments, were the largest contributor to the Consumer Price Index (CPI), climbing 0.6 percent monthly and 7.2 percent from a year ago.
The groups warned that further interest hikes will “pose broader risks to economic growth, heightening the likelihood and magnitude of a recession.”
They called on the Fed not to “contemplate further rate hikes” and not to sell its holdings of mortgage-backed securities until “the housing market has stabilized.”
“We urge the Fed to take these simple steps to ensure that this sector does not precipitate the hard landing the Fed has tried so hard to avoid,” the group said.
Mortgage Rates Reach Historical High
Housing costs have soared this year as the average monthly mortgage payment and rent are above $2,000. Experts warn that this has resulted from an undersupplied market and higher interest rates.The housing market has been severely affected since the Fed started raising the interest-rate campaign from near zero percent in March 2022 to 5.25 percent to tame high inflation.
Fed’s policy pushed other rates higher, particularly the 10-year Treasury yield, which is closely tied to the mortgage rates.
According to Freddie Mac, the mortgage rates have increased to 7.57 percent, a 23-year high.
As a result, many homebuyers are reluctant to buy houses due to higher borrowing costs, while multiple current homeowners are refraining from selling their residential properties because they do not want to lose their current low mortgage rates secured during the coronavirus pandemic. This leads to fewer housing transactions, hurting real estate brokers and agents.
Increase or Pause?
After increasing interest rates by over five percentage points during the last 19 months, the Fed now considers whether it will keep raising the benchmark lending rate again. In the last meeting in September, they kept the rates unchanged.For now, the futures market is mostly pricing in a rate pause at the policy-setting meetings in November and December of the Federal Open Market Committee (FOMC), according to the CME FedWatch Tool.
A handful of Fed officials have suggested that interest rates are high enough and that even the recent rally in Treasury yields could help do some of the U.S. central bank’s work.
Minutes from the September FOMC meeting suggest that officials debated whether to pull the trigger on one more rate increase. As committee members discussed the need for additional policy tightening, there was one uniform opinion: Rates would need to remain in restrictive territory until the Federal Reserve was confident that inflation is sustainably returning to its 2 percent target level.
“A majority of participants judged that one more increase in the target federal funds rate at a future meeting would likely be appropriate, while some judged it likely that no further increases would be warranted,” the minutes read.
While policymakers agreed that they need to “proceed carefully” on future decisions, they concurred that “policy should remain restrictive for some time until the committee is confident that inflation is moving down sustainably toward its objective.”
