The largest real estate industry group is calling on the Federal Reserve to rein in interest rate policy to prevent further instability in the housing market.
The Mortgage Bankers Association (MBA), National Association of Realtors (NAR), and National Association of Home Builders (NAHB) said in a letter to Fed Chairman Jerome Powell this week that they are not considering further rate hikes. requested the Fed. The bank also said it would refrain from further sales of mortgage-backed securities until the housing finance market stabilized.
The move marks the first time the group has addressed the central bank directly since the interest rate hike campaign began in March 2022, and “continued market uncertainty” over the Fed’s interest rate policy has weighed heavily on the housing market. It’s the latest sign of how badly it’s hurting. The group says it could have ripple effects on the broader economy.
“This has worsened housing affordability and created further disruption to a real estate market that is already struggling to adapt to dramatic setbacks in mortgage originations and home sales volumes. “This is occurring amid a historic shortage of affordable housing,” the group wrote.
“Further rate hikes… pose broader risks to economic growth and increase the likelihood and magnitude of a recession.”
A Fed spokesperson did not comment on the letter.
The housing situation has changed significantly since the Federal Reserve began raising short-term benchmark interest rates from nearly 0% in March 2022 to 5.25% currently in an effort to curb inflation.
The Fed’s policy actions indirectly pushed up mortgage rates as the 10-year Treasury yield rose, and the average interest rate on 30-year fixed mortgages also rose. This rate remains at a 23-year high at over 7%, and is likely to reach 8%.
As a result, not only have many buyers fled the market due to rising borrowing costs, but many homeowners are not selling their properties because they do not want to lose out on the current low mortgage rates. This has resulted in fewer and fewer transactions, which has been a huge blow to real estate agents and brokers represented by NAR.
Existing home sales declined again from the previous month in August, dropping 15.3% from a year earlier, according to the latest data from NAR. Separately, pending home sales, a leading indicator of future activity, fell 7.1% month-on-month in August.
The decline in economic activity has also disrupted the mortgage market.
Application activity for the week ending Sept. 29 fell to its lowest level since 1996, according to MBA, which represents the financial industry for both single-family and multifamily loans. As a result, layoffs are rampant in the industry.
For example, U.S. Bank, the fourth-largest mortgage lender, laid off employees in its mortgage division this summer, while Wells Fargo laid off more than 500 mortgage bankers earlier this year.
Home builders, whose spring sales have exceeded expectations, are also losing enthusiasm.
According to NAHB, the third lobbying group on the letter and an association representing more than 140,000 members in the home construction, renovation and multifamily sectors, a growing number of home builders believe the housing situation is poor. Confidence declined for the second consecutive month in September. construction.
“The two-month decline in builder sentiment is due to lower mortgage rates,” Alicia Huey, chairman of NAHB, a Birmingham, Alabama-based custom home builder and developer, said in a statement when the confidence numbers rose. “This coincides with a sharp increase of more than 7%, significantly eroding the purchasing power of buyers.” Freed.
Despite real estate industry concerns about a weak housing market, the Fed has made clear plans to keep interest rates steady for a longer period of time, and investors are wondering what exactly “longer term” means. Discussions are taking place.
Dallas Fed President Rory Logan warned this week that if the economy remains strong, investors could expect “tough financial conditions to continue” until the central bank reaches its 2% inflation target. .
But with housing activity accounting for nearly 16% of gross domestic product, any further price increases could pose a danger to the economy, real estate groups wrote.
Rather, they wrote, their “measures provide greater certainty to the market about the Fed’s interest rate path and MBS portfolio plans, reducing volatility for traders and investors.”
“We urge the Fed to take these simple steps to ensure this sector does not suffer the hard landing that the Fed has worked hard to avoid.”
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Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv.
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