In a joint effort, several industry trade groups, including the National Association of Realtors (NAR), the National Association of Home Builders (NAHB), and the Mortgage Bankers Association (MBA), have written a letter to Federal Reserve Chairman Jerome Powell expressing their concerns about ongoing interest rate hikes.[0] The groups argue that the Fed's actions to cool the housing market have instead caused market instability, exacerbating housing affordability issues and setbacks in the real estate market.
The letter emphasizes two key requests to the Fed. First, the groups urge the Fed to make it clear that it does not plan to implement further rate hikes. They argue that the uncertainty surrounding the Fed's rate decisions has led to unexpected interest rate increases, making the already challenging housing market even more difficult.[1]
Second, the trade groups ask the Fed to refrain from selling off any of its mortgage-backed securities (MBS) holdings until the housing finance market stabilizes and mortgage-to-Treasury spreads normalize. They highlight that the spread between 30-year mortgage rates and the 10-year Treasury yield is historically high, indicating deep-seated uncertainty about the Fed's direction. This uncertainty-induced spread is costing homebuyers an additional $245 in monthly payments on a standard $300,000 mortgage. The groups argue that further rate increases and a persistently wide spread pose broader risks to economic growth and increase the likelihood of a recession.[2]
The trade groups also propose amending the preferred stock purchase agreements (PSPAs) to allow Fannie Mae and Freddie Mac to purchase their own MBS and/or Ginnie Mae MBS for a defined period of time.[3] They believe this temporary measure will help stabilize the housing market and provide relief to first-time homebuyers by lowering borrowing costs and increasing inventory.[4]
The letter highlights the impact of rate hikes on the housing market. Shelter costs have risen by 7.3%, contributing to overall consumer price increases of 3.7% in August.[5] The housing groups argue that high shelter costs, which accounted for 90% of the consumer price gains in July, are keeping inflation elevated.[5] They emphasize that facilitating the construction of attainable, affordable housing is crucial to addressing this issue and supporting economic growth.
Mortgage rates have reached their highest levels in more than two decades, and the groups express concern that more rate hikes are on the horizon.[6] They point out that the rate hikes have worsened housing affordability and disrupted a market already strained by a historic shortage of attainable housing.
The trade groups call for these steps to provide the market with greater certainty about the Fed's rate path and its plans for the MBS portfolio.[1] They argue that reducing volatility for traders and investors is essential, as housing activity accounts for nearly 16% of GDP.[7] The groups hope that by taking these measures, the Fed can avoid a hard landing and support the housing industry.
Overall, the joint letter from the industry trade groups highlights the concerns surrounding ongoing interest rate hikes and their impact on the housing market. The groups emphasize the need for clarity from the Fed and propose measures to stabilize the housing finance market and improve affordability. By addressing these concerns, the trade groups hope to protect the housing industry and support economic growth.
0. “Trade Groups Call Upon Fed to Curb Rate Hikes” DSNews.com, 10 Oct. 2023, https://dsnews.com/news/10-10-2023/trade-groups-call-upon-fed-to-curb-rate-hikes
1. “US housing industry raises alarm on Fed's monetary policies” Mortgage Professional, 10 Oct. 2023, https://www.mpamag.com/us/mortgage-industry/market-updates/us-housing-industry-raises-alarm-on-feds-monetary-policies/462561
2. “Housing Market to Drag Economy Into Hard Landing Unless Fed Takes 2 Steps” Markets Insider, 10 Oct. 2023, https://markets.businessinsider.com/news/stocks/housing-market-recession-economy-hard-landing-fed-rate-hikes-qt-2023-10
3. “Banking Group Proposes Solution To Promote Mortgage Affordability” National Mortgage Professional, 13 Oct. 2023, https://nationalmortgageprofessional.com/news/banking-group-proposes-solution-promote-mortgage-affordability
4. “CRE Housing Groups Ask the Fed for More Market Certainty” Globe St., 12 Oct. 2023, https://www.globest.com/2023/10/12/cre-housing-groups-ask-the-fed-for-more-market-certainty/
5. “MBA, NAHB and NAR urge Fed to project calm around rates” National Mortgage News, 10 Oct. 2023, https://www.nationalmortgagenews.com/news/mba-nahb-and-nar-urge-fed-to-project-calm-around-rates
6. “Real estate groups urged the Fed to stop rate hikes. Here’s why.” KRMG, 13 Oct. 2023, https://www.krmg.com/news/business/real-estate-groups/6XAP2X243NALQYSOQ5MBLFYG6Y/
7. “MBA, NAR, NAHB Call for Halt to Fed Rate Hikes” Connect CRE, 10 Oct. 2023, https://www.connectcre.com/stories/mba-nar-nahb-call-for-halt-to-fed-rate-hikes/
