US housing industry raises alarm on Fed's monetary policies

Mortgage and real estate associations call for clarity and stability

US housing industry raises alarm on Fed's monetary policies

A housing coalition has penned a letter to the Federal Reserve, voicing its growing concerns over the unsettling impacts of the Fed’s monetary policies on the housing market.

The coalition – which includes the Mortgage Bankers Association (MBA), the National Association of REALTORS (NAR), and the National Association of Home Builders (NAHB) – has expressed worries that the “deep-seated uncertainty” surrounding the Fed’s rate decisions has led to some unexpected interest rate hikes, making an already tricky housing market even more challenging.

With mortgage rates now at their highest in 23 years, according to the MBA’s data, it feels like a throwback to the tough times of 1996 for many in the industry.

“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,” the coalition wrote in the letter addressed to Fed chairman Jerome Powell. “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.

Read more: Federal Reserve interest rate announcement - just in

“The difference between the current spread and the long-run average indicates mortgage rates for homebuyers across the country that are at least 120 basis points higher than they otherwise would be. In other words, the uncertainty-induced mortgage-to-Treasury spread is costing today’s homebuyers an extra $245 in monthly payments on a standard $300,000 mortgage. Further rate increases… pose broader risks to economic growth, heightening the likelihood and magnitude of a recession.”

Beyond the immediate concerns, the coalition also drew attention to the bigger issue of rising shelter costs. They’ve flagged that these costs are a significant driver of recent inflation. The solution, they suggest, is to make it easier to build affordable homes. But the current interest-rate environment is making that tough.

“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,” the letter read.

For now, the coalition is asking the Fed to issue two clear statements to restore market confidence:

  1. The Fed has no plans for further rate hikes.
  2. The Fed will refrain from selling off any of its MBS holdings until the housing finance market stabilizes and mortgage-to-Treasury spreads normalize.

“These steps will provide the market greater certainty about the Fed’s rate path and its plans for the MBS portfolio and reduce volatility for traders and investors,” the coalition said. “Housing activity accounts for nearly 16% of GDP, according to NAHB estimates. 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.”

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