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Uncertainty over the Federal Reserve’s next move could disrupt the housing sector and depress the U.S. economy, three prominent real estate industry trade groups warned in a letter Monday. In it, they called on Fed policymakers to promise they are done raising interest rates and have no plans to sell the trillions of dollars worth of mortgage bonds the central bank bought during the pandemic.
The joint letter from the Mortgage Bankers Association (MBA), National Association of Realtors (NAR), and National Association of Home Builders (NAHB) was announced by MBA CEO Bob Bruksmit on national television last week. I agree with your concerns.
In an appearance on CNBC on Wednesday, Bruksmit told Fed policymakers to “make it clear that we’re done raising interest rates” and “make it clear that we’re not going to sell mortgage-backed securities off our balance sheet.” I asked.
To keep the economy from collapsing during the pandemic, the Fed not only cut short-term interest rates to nearly 0 percent, but also bought trillions of long-term Treasuries and mortgage-backed securities (MBS) to lower interest rates. , encourage debt.
The Fed cut $1 trillion from its balance sheet
Source: Federal Reserve Board; Federal Reserve Bank of St. Louis
Mortgage rates fell to historic lows until the Fed began tightening last year, not only by raising short-term rates but also by reducing its large holdings of Treasuries and MBS.
So far, the Fed has not sold any of these assets, only allowing up to $60 billion in maturing U.S. Treasuries and $35 billion in monthly MBS to be written off without replacement. .
But Burksmit told CNBC that the “spread” between the 10-year Treasury rate and mortgage rates has widened due to concerns that the Fed might actually sell MBS on the open market. He said that it is now even higher than it should be.
NAR and NAHB now work with MBA to express these concerns in a letter to Fed leaders.
“The difference between the current spread and the long-term average indicates that mortgage rates for homebuyers nationwide are at least 120 basis points higher than they would otherwise be,” the industry group said. “In other words, the uncertainty-induced spread between mortgages and the Treasury is causing today’s homebuyers to pay an extra $245 per month on a standard $300,000 mortgage. “Further rate hikes and wide persistence of spreads pose broader risks to economic growth and increase the likelihood and magnitude of recessions.”
The Fed did not immediately respond to Inman’s request for comment.
Most Fed policymakers said last month they thought the Fed would need to raise short-term rates at least one more time this year, and several, including Mr. Powell, said the Fed would need to raise rates for “a longer period of time.” He said he expected it would need to be pursued. Interest rate strategies to control inflation.
Fed leaders have previously said they base their decisions on available data to achieve the central bank’s dual mandate of promoting maximum employment while controlling inflation.
But in a message to MBA members after an appearance on CNBC last week, Mr. Burksmit suggested the group was listening to Fed policymakers.
“We are in regular discussions with Fed executives and share market color in real time on both residential and commercial lending,” Bruksmit said in an email to members. “Conditions in the housing and real estate financial markets are key to the Fed’s overall economic outlook, and the Fed constantly relies on us to make such market judgments. What we are learning from this continued effort One is that they are keenly aware of how tough the housing market is.”
Mr. Burksmit also explained that in his view, “Fed policy is not the sole cause of recent interest rate instability,” and that Congress “needs to take steps to restore budgetary discipline and effective policymaking.” “There is,” he said.
The recent spike in interest rates “started when Fitch downgraded the U.S. credit rating in response to the debt limit crisis, followed by an increase in Treasury issuance needed to finance growing deficits,” Burksmit wrote. . “The ongoing impasse on Capitol Hill, including last week’s ‘near-miss’ government shutdown, continues to be a concern for financial markets, pushing Treasury prices further higher.”
He said the MBA “continues to urge policymakers to come together to address budget and spending priorities that thwart the threat of a government shutdown and restore fiscal discipline.”
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