Trade Groups Call Upon Fed to Curb Rate Hikes

Leadership from the Mortgage Bankers Association (MBA), National Association of Home Builders (NAHB), and National Association of Realtors (NAR) have sent a joint letter to the Honorable Jerome Powell, Chair of the Board of Governors of the Federal Reserve System, regarding the housing industry’s concerns over the negative market impacts that the Fed’s monetary policy actions, including rate hikes and quantitative tightening, are having on the market.

The letter urges the Fed to make two clear statements to the market:

• That the Fed no longer contemplate any further rate hikes; and
• That the Fed not sell off any of its MBS holdings until and unless the housing finance market has stabilized and mortgage-to-Treasury spreads have normalized.

“According to MBA’s latest Weekly Applications Survey data, mortgage rates have now reached a 23-year high, dragging application activity down to a low last seen in 1996,” explained the letter. “The speed and magnitude of these rate increases, and resulting dislocation in our industry, is painful and unprecedented in the absence of larger economic turmoil. Today, the spread between 30-year mortgage rates and the 10-year Treasury yield is at historically high levels, signaling deep-seated uncertainty about where the Fed is headed.”

Joel Kan, MBA’s VP and Deputy Chief Economist, said, “Mortgage rates continued to move higher last week, as markets digested the recent upswing in Treasury yields. Rates for all mortgage products increased, with the 30-year fixed mortgage rate increasing for the fourth consecutive week to 7.53%–the highest rate since 2000. As a result, mortgage applications grounded to a halt, dropping to the lowest level since 1996. The purchase market slowed to the lowest level of activity since 1995, as the rapid rise in rates pushed an increasing number of potential homebuyers out of the market. ARM loan applications picked up over the week, and the ARM share increased to 8%, as some borrowers searched for ways to lower their payments.”

In mid-September, the Federal Reserve’s Open Market Committee (FOMC) chose to forgo the opportunity to raise the central bank’s nominal interest rate at the conclusion of their September meeting, a repeat of the action the committee last took in June. The target rate now stands at 5.25-5.50%, and the FOMC next convenes on October 31-November 1.

The most aggressive series of rate hikes in history ended in June when the committee held off on raising rates due to a litany of positive factors which consisted of 11 straight rate hikes over 15 months. Since the post-pandemic rate hikes began, the FOMC raised rates in March 2022 (+25 points), May 2022 (+50 points), June 2022 (+75 points), August 2022 (+75 points), September (+75 points), November 2022 (+75 points), December 2022 (+50 points), February 2023 (+50 points), March 2023 (+25 points), May 2023 (+25 points), June 2023 (+0 points), and July (+25 points). This is equivalent to a rise of 5.00 percentage points over the last year.

As Freddie Mac reported in its latest Primary Mortgage Market Survey (PMMS), the 30-year fixed-rate mortgage (FRM) averaged 7.49% for the week ending October 5, 2023, up 18 basis points from last week’s average of 7.31%.

“Mortgage rates maintained their upward trajectory as the 10-year Treasury yield, a key benchmark, climbed,” said Sam Khater, Freddie Mac’s Chief Economist. “Several factors, including shifts in inflation, the job market and uncertainty around the Federal Reserve’s next move, are contributing to the highest mortgage rates in a generation. Unsurprisingly, this is pulling back homebuyer demand.”

The letter notes that housing activity accounts for nearly 16% of nation’s Gross Domestic Product (GDP), according to NAHB estimates. “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,” said the trade groups in the letter.

Click here to view the full letter from the MBA, NAHB, and NAR to the Board of Governors of the Federal Reserve System.