Key Details:
- Senator Elizabeth Warren and three other Democratic lawmakers wrote to Fed Chairman Jerome Powell this week, urging the Federal Reserve to cut “astronomical” rates.
- The letter details issues with housing affordability across the nation, despite increased consumer optimism about the housing market after the Fed announced in December the likelihood of cutting rates in 2024.
In a letter dated January 28, 2024, United States Senators Elizabeth Warren, John Hickenlooper, Jacky Rosen and Sheldon Whitehouse expressed concerns about the housing market to Federal Reserve Chairman Jerome Powell.
In October, the Mortgage Bankers Association, National Association of Realtors and National Association of Home Builders also wrote a letter to Powell, urging the Fed to take steps to provide market certainty about rate hikes.
Warren’s letter highlights the housing affordability crisis in the United States, stating it is “a direct result” of the Fed’s rate hikes, resulting in mortgage rates reaching 20-year highs in 2023.
“The Fed’s decision to raise interest rates rapidly, and keep them high, has resulted in higher costs for home purchasers, higher rents, and reductions in new home and apartment building—and the job growth that comes with these investments.”
Request for Rate Reduction
The senators urge Chair Powell to consider the effects of interest rate decisions on the housing market—and to reverse “astronomical rates” that have made affordable housing inaccessible to many.
The letter does state the relief consumers felt after rates came down from the high of 8% last October. However, it also noted that many people continue to struggle with the current mortgage rates.
“While the decision of the Federal Open Market Committee (FOMC) to pause rate hikes in September and December 2023 was a welcome first step, and the recent modest decline in rates provided some welcome relief, interest rates are still too high for many American families, who already cannot afford to pay rent or buy their first homes.”
With the FOMC meeting taking place this week, the letter is direct in its request for relief:
“Given the impacts of the Fed’s monetary policy on our country’s housing ecosystem—and the ripple effects for health outcomes in communities, wealth creation, and access to job and educational opportunities—we urge the Fed to reverse its aggressive hikes to the federal funds rate in 2024.”
Regarding the requests, a Fed spokesperson told CNBC, “We have received the letter and plan to respond.”
Impact on the Housing Market
Outside of increased mortgage rates, which significantly impact a homeowner’s monthly payment, the letter discusses additional impacts on the housing and rental markets, including:
- Housing supply crisis: The housing inventory shortage, coupled with higher construction costs, has kept home prices high.
- Rental market: High rates deter prospective homebuyers, leading many families to remain in the rental market. In addition, rental costs remain high.
- Disparate Impact on Minorities: The affordability crisis disproportionately affects Black and Hispanic households, with significant homeownership gaps compared to white households. Black and Hispanic homeowners have faced higher loan denial rates, smaller loan amounts, and higher upfront fees, contributing to the racial wealth gap.
The letter concludes by signaling the impact rate cuts have already had on consumer sentiment and urges the Fed to continue making cuts.
“The Fed has already signaled its willingness to cut rates, and the market has responded accordingly. Working families, already struggling with the cost of housing, need relief now.”
To read the letter in its entirety, including source citations, click here.
