In what some might describe as a futile effort, the National Association of Home Builders, the Mortgage Bankers Association and the National Association of Realtors wrote a letter to the Fed asking them to stop increasing rates and to stop selling its mortgage-backed securities. In short, they urged 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.” They’re asking the Fed to halt the sale of securities until the housing finance market has stabilized and mortgage-to-Treasury spreads have returned to normal levels. Otherwise, by continuing to sell securities, it will take money out of the economy and ultimately cause interest rates to rise. Brown Harris Stevens Chief Economist, Greg Heym says their letter brings up a valid point that doesn’t get much coverage. He explains, “The biggest contributor to inflation today remains the cost of shelter, which accounted for 90% of the increase in CPI in July, and over half of September’s inflation. To get housing prices down, America needs to build more homes, which is very difficult to do when rates for construction loans and mortgages are this high.” Heym adds that while this is a nice attempt by the housing groups, he expects the Fed will probably hike rates one more time, most likely after their December meeting. As of today, October 18, 2023, the current average interest rate for a 30-year fixed mortgage is 7.99%, increasing 16 basis points since the same time last week, according to Bankrate. The Fed is cognizant of the dislocations this has caused in the housing market. In July, Fed Chair Jerome Powell said, “this will take some time to work through. Hopefully, more supply comes on line.” Despite the central bank having raised its key borrowing rate 11 times since March 2022—the quickest rate of tightening since the early 1980s—the Fed is still grappling with how to proceed with monetary policy. Minneapolis Fed President Neel Kashkari suggested that rates may have to increase significantly to tackle the issue of soaring prices. Although this latest news may be considered worrisome, there is still some optimism for rates to eventually come down as I pointed out in early last month. As you may recall, Zillow Co-Founder Spencer Rascoff said experts anticipate rates will be back in the 6’s by spring and possibly the 5’s by summer next year.
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