No more rate hikes, housing market leaders urge Federal Reserve
Real estate and banking leaders are urging the Federal Reserve to have mercy on the housing market.
In a letter sent Monday to Fed Chairman Jerome Powell, officials expressed “profound concern” about “ongoing market uncertainty” surrounding the Fed’s strategy on rate increases. That uncertainty, they wrote, is “contributing to recent interest rate hikes and volatility.”
“This 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.”
The average interest rate for a 30-year mortgage is tracking toward 8%, reaching 7.8% this week, according to Bankrate.com. Meanwhile, the average U.S. home sales price hit $407,100 in August, up 3.9% from a year ago, according to the National Association of Realtors.
Related
In the letter, the Mortgage Bankers Association, the National Association of Realtors and the National Association of Realtors urged the Fed to “make two clear statements to the market.” First, to not “contemplate further rate hikes,” and second, to not to sell off its mortgage securities “until and unless the housing finance market has stabilized and mortgage-to-treasury spreads have normalized.”
The letter comes as the Fed has grappled with record levels of inflation for over a year while also attempting to steer the U.S. economy toward a “soft landing“ and avoid a serious economic recession. Since March of last year, the Fed has raised key borrowing rates 11 times, CNBC reported.
“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,” industry leaders wrote in the letter.
In recent days, two key Fed officials have expressed support for keeping interest rates high as high inflation persists, per CNBC. At the same time, they’ve expressed that the central bank could hold off on more increases while assessing impacts from previous rate hikes on different segments of the economy.
Mortgage rates have reached a 23-year high, sinking mortgage application activity down to its lowest level since 1996, according to the Mortgage Bankers Association’s latest weekly survey, the letter notes.
“The speed and magnitude of these rate increases, and resulting dislocation in our industry, is painful and unprecedented in the absence of larger economic turmoil,” officials wrote. “Today, the spread between 30-year mortgage rates and the 10-year Treasury yield is at historically high levels, signaling deep-seated uncertainty about where the Fed is headed.”
Meanwhile, housing sales have plummeted and extremely low inventory has kept prices high across the U.S., though some states like Utah have seen housing prices fluctuate after appearing to bottom in January. Through spring and summer, Utah’s housing prices began increasing again before declining again slightly in August, signaling there may be more of a correction coming headed into a chillier-than-usual fall market.
Related
In a July press conference, Powell said the Fed has been seeing the effects of policy tightening on demand in the most rate-sensitive sectors of the economy, particularly housing and investment.
“It will take time, however, for the full effects of our ongoing monetary restraint to be realized, especially on inflation,” he said. “In addition, the economy is facing headwinds from tighter credit conditions for households and businesses, which are likely to weigh on economic activity, hiring, and inflation.”
Asked whether the Fed feels it’s close to achieving better balance in the housing market, particularly when it comes to constrained inventory due to sellers locked in at low rates, Powell said, “I think we’ve got a ways to go.”
“I think this will take some time to work through,” Powell said. “Hopefully, more supply comes on line, and, you know, we, we work through it.”
Related
