BAM Key Details:

  • The MBA, NAR and NAHB wrote a letter to Fed Chairman Jerome Powell urging the Fed to take steps to provide market certainty about rate hikes. 
  • The letter outlines two statements the industry trade organizations are urging the Fed to make clear to the market. 

    In a joint effort that underscores the severity of affordability in the U.S. housing market, three major players in the real estate industry—the Mortgage Bankers Association (MBA), National Association of REALTORS® (NAR) and National Association of Home Builders (NAHB)—have penned a letter to Federal Reserve Chairman Jerome Powell. 

    Their message is clear: the real estate market is in dire need of stability amidst ongoing uncertainty about the Fed’s rate path.

    Letter to Fed

    The letter to Fed Chair Powell expresses concern over the ripple effects of market uncertainty, which the MBA, NAR and NAHB  believe have directly contributed to recent interest rate hikes and volatility. The letter states:

    “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.”

    MBA, NAR and NAHB in Letter to Fed

    The letter notes that these challenges are unfolding against the backdrop of a historic shortage of affordable housing, making the situation even more critical. According to the MBA’s latest data, mortgage rates have reached a 23-year high, resulting in a level of mortgage application activity not seen since 1996.

    The Impact on Homebuyers

    One of the most alarming consequences of this uncertainty is the significant gap between 30-year mortgage rates and the 10-year Treasury yield. As a result, prospective homebuyers across the country are facing mortgage rates that are at least 120 basis points higher than they typically would be. For homebuyers, that difference results in hundreds of dollars a month—making it difficult to imagine a path forward if rates continue to rise. 

    “The uncertainty-induced mortgage-to-Treasury spread is costing today’s homebuyers an extra $245 in monthly payment on a standard $300,000 mortgage.”

    MBA, NAR and NAHB in Letter to Fed

    Proposed Solution for Affordable Housing

    In addition to addressing the impact on homebuyers, the industry organizations emphasize the link between housing and inflation. They highlight that shelter costs have been a leading source of recent inflation, with consumer prices up 3.7% in August, and shelter costs up a staggering 7.3%. July saw shelter inflation accounting for 90% of the gain in consumer prices. 

    To combat this issue effectively, the industry leaders argue that new construction for affordable housing is the best solution. The alternative—sustained wide spreads or further increases in interest rates without increasing housing supply—will mean “pricing out millions of households from the goal of homeownership,” the letter states. 

    While the industry at large knows construction of affordable housing is key to providing relief in the housing market, Byron Lazine argued that it’s not the Fed’s job to make this happen on today’s Hot Sheet

    “Yes, MBA, yes NAHB, yes NAR—but, you should have been doing something about that years ago. We’re paying the price right now for everybody’s lack of building affordable housing. Jerome can’t fix that. He can’t fix the facilitation of construction of attainable, affordable housing.”

    Byron Lazine

    The Clear Demands

    To address these pressing concerns, the MBA, NAR, and NAHB urge the Fed to make two clear statements to the market:

    • The Fed does not contemplate further rate hikes;
    • “The Fed will not sell off any of its MBS holdings until and unless the housing finance market has stabilized and mortgage-to-Treasury spreads have normalized.”

      These industry organizations argue that taking steps to provide market certainty about the Fed’s rate path and its plans for the MBS portfolio will reduce volatility for traders and investors, helping to bring stability back to the real estate market.

      In their closing statement, the MBA, NAR, and NAHB emphasize that housing activity accounts for nearly 16% of GDP. 

      “We urge the Fed to take these simple steps to ensure that this sector does not precipitate the hard landing the Fed has tried so hard to avoid.”

      MBA, NAR and NAHB in Letter to Fed