Housing Industry Leaders Unite: NAHB, MBA, and NAR Call on Federal Reserve to Halt Rate Hikes

In a concerted effort to address the pressing concerns of the housing industry, the National Association of Home Builders (NAHB), the Mortgage Bankers Association (MBA), and the National Association of REALTORS? (NAR) have joined forces to urge the Federal Reserve to take action. With mortgage rates reaching a 23-year high and mortgage application activity hitting its lowest level since 1996, these influential organizations are calling upon the Federal Reserve to provide assurance that it will not implement further interest rate hikes.

On October 9, 2023, the three prominent housing and banking groups jointly penned a letter addressed to the Board of Governors of the Federal Reserve, expressing their profound concerns about the ongoing market uncertainty surrounding the Fed's rate policies, which have contributed to recent interest rate hikes and market volatility.

The letter emphatically stated, "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."

Presently, the spread between 30-year mortgage rates and the 10-year Treasury yield has reached historically high levels. The disparity between the current spread and the long-term average implies that mortgage rates for homebuyers nationwide are at least 120 basis points higher than they would otherwise be. In simpler terms, the uncertainty-induced mortgage-to-Treasury spread is causing today's homebuyers to shoulder an additional $245 in monthly payments for a standard $300,000 mortgage.

The organizations also highlighted that the primary driver of recent inflation has been increases in shelter costs. The August Consumer Price Index reported a 3.7% increase in consumer prices, with shelter costs rising by a significant 7.3%. In July, shelter inflation accounted for 90% of the overall consumer price increase.

The letter emphasized, "The most effective approach to control shelter costs and contribute to the broader fight against inflation is to promote the construction of attainable, affordable housing." Sustained wide spreads or further interest rate hikes make this economic objective more challenging by restricting lot development, limiting home construction, exacerbating housing supply issues, and pricing out millions of households from the dream of homeownership.

In response, the NAHB, MBA, and NAR urged the Federal Reserve to provide two critical assurances to the market:

The Federal Reserve does not foresee any additional rate hikes.

The Federal Reserve will refrain from selling any of its mortgage-backed securities holdings until and unless the housing finance market stabilizes and mortgage-to-Treasury spreads return to normal levels.

Meanwhile, a prominent Federal Reserve official expressed agreement with the need to maintain the current stance on interest rate hikes. Federal Reserve Bank of Atlanta President Raphael Bostic stated, "I think that our policy rate is at a sufficiently restrictive position to get inflation down to 2%. I actually don't think we need to increase rates anymore." His remarks were made during an interview on Bloomberg Television at the annual convention of the American Bankers Association.

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