Three real estate industry groups are banding together to call the Federal Reserve’s attention to the havoc that rising interest rates are allegedly wreaking on the flagging housing market.
The Mortgage Bankers Association (MBA), National Association of Realtors (NAR) and National Association of Home Builders (NAHB) sent a letter to Fed Chair Jerome Powell and the central bank’s board of governors. The letter seeks to “convey profound concern shared among our collective memberships” about the impacts of continued uncertainty regarding ongoing rate policy.
“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,” the letter stated in regard to the Fed’s reluctance to telegraph future policy. “These market challenges occur amidst a historic shortage of attainable housing.”
The organizations are urging the Fed, which has thus far been reticent to release concrete comments about future policy, to make two statements: That it does not contemplate further rate hikes, and that it won’t sell off any of its holdings of mortgage-backed securities until and unless the housing market is stable and the spreads between 30-year mortgage rates and the 10-year Treasury yield has normalized.
That spread, which generally reflects how risky it is to invest in mortgage-backed securities, is uncharacteristically high at the moment. Based on the difference between the current spread and its long-term average, the groups say that mortgage rates are at least 120 basis points higher than they should be, costing homebuyers an extra $245 in monthly payments on a $300,000 mortgage.
The letter also pointed to the dearth of mortgage applications as tracked by the MBA’s Weekly Applications Survey, which recently reported a lull in activity unseen in this millennium. The lull has coincided with mortgage rates reaching their highest level in 23 years, with the groups asserting that the speed and magnitude of rate increases since March 2022 have led to “painful and unprecedented” times for the real estate industry, especially in the absence of a larger economic downturn.
Moreover, the groups underscored the climbing costs of housing as a leading source of the inflation that the Fed is desperately trying to rein in. In July, for example, shelter inflation accounted for 90% of the gain in consumer prices.
“The most effective approach to tame shelter costs, and assist on the broader inflation fight, is to facilitate the construction of attainable, affordable housing,” the letter stated. “Sustained wide spreads or further increases in interest rates make this economic goal more challenging by limiting lot development and home construction, exacerbating housing supply, and pricing out millions of households from the goal of homeownership.”
