Ep. 103 - Housing Industry Calls for Jerome Powell to Stop Rate Hikes

Oct 23, 2023

Housing Industry Calls for Jerome Powell to Stop Rate Hikes

In a startling letter sent to Federal Reserve Chair Jerome Powell, three major housing industry groups - the Mortgage Bankers Association, National Association of Realtors, and National Association of Home Builders - pleaded for the Fed to stop raising interest rates.

These influential groups warn that the Fed's aggressive rate hikes are destroying housing affordability and pushing the economy towards a recession. The letter urges the Fed to pause rate increases and take action to bring mortgage rates back in line with the 10-year Treasury yield.


Why Did Housing Groups Send This Letter?

The housing industry is feeling the pain from the Fed's restrictive policies aimed at lowering inflation. As Quinton Harris explains in episode 103 of the What’s Your 1 More podcast, mortgage rates have skyrocketed, with the average 30-year fixed mortgage rate now well over 7% - the highest level since 2000.

Meanwhile, the gap between mortgage rates and 10-year Treasury yields has ballooned to historically high levels. This is pricing many homebuyers out of the market and causing application volumes to plummet.

The rapid rate hikes have created massive uncertainty and volatility. As the letter argues, mortgage rates are now around 2% higher than normal relative to Treasuries. This costs the average homebuyer an extra $245 per month on a $300,000 loan.

With housing construction slowing and home sales falling, the industry is sounding the recession alarm bells. They are begging the Fed to stop before the entire housing market crumbles.


What Are They Asking the Fed to Do?

The letter urges the Fed to immediately pause further rate hikes. While the Fed is laser-focused on fighting inflation, the housing groups argue they must also consider the economic damage being inflicted.

In addition, they want the Fed to stabilize mortgage rates relative to Treasuries. This likely requires the Fed to resume purchasing mortgage-backed securities to support the struggling housing market. The letter makes it clear today's rates are crushing housing affordability for current homebuyers.


Will the Fed Listen and Change Course?

The big question is whether the Fed will pay attention to these desperate cries for help. The housing industry is sounding alarms that the Fed's war against inflation risks causing a full-on economic meltdown.

However, Powell has shown a steel resolve to keep aggressively raising rates until inflation retreats. The Fed's next meeting is on November 1st. All eyes will be watching to see if Powell shows any indication of backing off rate hikes in response to the housing turmoil. Otherwise, the housing recession fears may become a reality.

This major plea from the housing industry highlights the escalating tensions and risks facing the economy. With families struggling to afford homes, the Fed faces growing pressure to prevent its policies from cratering the housing market.


Bottom Line

This desperate plea lays bare the economic pain and turmoil being created by the aggressive rate hikes. However, it remains to be seen if the Fed will truly listen and respond. Powell seems intent on keeping rates elevated until inflation is defeated.

But the housing groups make a compelling case that the Fed risks going too far. With a housing collapse threatening the economy, many hope this letter will be a wakeup call before it's too late.

The coming months will be pivotal. The Fed must carefully weigh its inflation fight against the harm to housing affordability and the risk of recession. All eyes are on whether Powell will blink first and slow the pace of rate increases.

For potential homebuyers and the housing industry, the Fed's next moves could make or break the market. Everyone is holding their breath, braced for impact. The Fed holds the fate of the housing market in its hands.