The National Association of Home Builders, the Mortgage Bankers Association and the National Association of Realtors sent a letter to the Fed expressing powerful worries about the sector. The organizations requested that the Fed refrain from considering more rate increases and desist from actively disposing of its mortgage security possessions.
The National Association of Home Builders, the Mortgage Bankers Association and the National Association of Realtors sent a letter on Monday to the Federal Reserve Board of Governors and Chair Jerome Powell urging the Fed to halt the raising of interest rates. They expressed that such action is having a negative effect on the real estate market, highlighting the financial strain for buyers from the soaring housing costs and scarce amount of homes available for sale. The letter requested that the Fed not increase their borrowing rate any further nor sell mortgage securities until the housing market had stabilized. They requested that these steps be taken to avert a "hard landing" which the Fed has thus far strived to avoid. This comes after 11 interest rate hikes since March 2022.
In recent days, several officials have expressed that the central bank may be able to put a pause on further increases as it evaluates the effect that its prior increases have had on different aspects of the economy. Nonetheless, there appears to be scarcely any desire for any easing, with the fed funds rate now standing between 5.25%-5.5%, the highest since 22 years ago.Also, the housing market has been affected by low inventory, prices that have risen by almost 30% since the start of the Covid pandemic and sales volumes that are 15% lower than a year ago.The letter mentions that the rate hikes have "exacerbated housing affordability and triggered additional disturbances for a real estate sector that is already struggling to adjust to a dramatic decrease in both mortgage origination and home sale volume. These market difficulties take place in the middle of a historic lack of affordable housing."In his last couple of meetings, Powell has acknowledged the disruptions in the housing market. During his July news conference, the chair mentioned "this will take some time to work through. Hopefully, more supply comes on line."Based on Bankrate, the average 30-year mortgage rate is now just below 8%, while the average home price has risen to $407,100, with available inventory equivalent to 3.3 months. NAR officials estimate that inventory would need to be doubled to bring down prices."The speed and intensity of these rate hikes, and the resulting dissonance in our industry, is painful and uncommon in the absence of bigger economic trouble," the letter said.The organizations also make it clear that the differences between the 30-year mortgage rate and the 10-year Treasury yield are at historically high levels, while shelter costs are a leading factor for increases in the consumer price index inflation gauge.As part of an effort to cut down its bond holdings, the Fed has reduced its mortgage holdings by almost $230 billion since June 2022. However, it has done so by passively allowing maturing bonds to roll off its balance sheet, as opposed to reinvesting. There is some concern that the Fed might become more aggressive and start actively disposing of its mortgage-backed securities holdings into the market, though no plans to do so have been declared.
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