In a letter to Federal Reserve Chair Jerome H. Powell, Rep. Maxine Waters, Chairwoman of the House Financial Services Committee, expressed her concern over the impact of the Fed’s sixth consecutive rate hike on the nation’s housing market.
In the letter, Chairwoman Waters urges Chair Powell to consider the significant pain that these rate increases may inflict on families across the country, and the impact these increases are having on the cost of housing.
Last week at the conclusion of the latest Federal Open Market Committee (FOMC) meeting, the Federal Reserve increased the federal funds rate by 0.75% to a target range of 3.75%-4%–the sixth straight rate hike issued by the Fed in an effort to curb inflationary concerns.
“I am deeply troubled by the Federal Reserve’s (Fed’s) rapid series of super-sized interest rate hikes, which may inflict unnecessary pain on millions of individuals and families while sending the economy into a devastating recession,” said Chairwoman Waters in the letter. “This week’s Federal Open Market Committee (FOMC) decision marks the fourth consecutive mega rate hike by the Fed, resulting in the highest federal funds rate since before the 2008 global financial crisis and the fastest set of rate hikes by the Fed in four decades. Enough is enough.”
Freddie Mac reported last week that the 30-year fixed rate mortgage (FRM) dipped below the 7% mark, dropping to 6.95% for the week ending November 3, 2022.
And as rate remain at near-20-year highs, affordability is a major obstacle for both first-time buyers and those looking to make a move in a very erratic housing marketplace.
“This Congress, my Committee has been sounding the alarm on the need to address our nation’s worsening housing crisis and the effects it has on rising inflation,” said Rep. Waters. “It is abundantly clear that we do not know the full impact of your recent rate hikes, but it seems counterproductive that they appear to be worsening, not alleviating, a primary driver of core inflation—housing costs. In fact, the average rate on a 30-year mortgage is above 7%—the highest rate seen in two decades.”
As high rates and continued inflation pressure the wallets of more Americans, homebuyer affordability fell in September, as the national median payment applied for by applicants increased 5.5% to $1,941 from $1,839 in August, according to the latest Mortgage Bankers Association (MBA) Purchase Applications Payment Index (PAPI).
“Homebuyer affordability took an enormous hit in September, with the 75-basis-point jump in mortgage rates leading to the typical homebuyer’s monthly payment rising $102 from August,” said Edward Seiler, MBA's Associate VP, Housing Economics, and Executive Director, Research Institute for Housing America. “With mortgage rates continuing to rise, the purchasing power of borrowers is shrinking. The median loan amount in September was $305,550–much lower than the February peak of $340,000.”
The National Association of Realtors (NAR) recently reported that the rise in mortgage rates has increased the monthly mortgage payment by $1,000, and that minority groups have been impacted more heavily. And although mortgage rates reached all-time lows in 2021 during the pandemic, not everybody was able to benefit from these low rates. During 2019 and 2021, White homeownership rose by nearly three percentage points, while the homeownership rate for Black Americans rose by two percentage points. NAR found that with mortgage rates in their current range of nearly 7%, only 15% of Black households can afford to buy a typically priced American home, compared to 30% of White households.
“These high interest rates are increasing the cost of homeownership by more than $1,000 per month as home prices have continued to rise year-over-year,” said Rep. Waters in her letter to Powell. “This steep increase in owning a home disincentivizes current homeowners to move, exacerbating affordability and supply constraints. In fact, the portion of first-time homebuyers plummeted to 26%, the lowest level in more than four decades when the National Association of Realtors began collecting this data.”
A new survey from Grubb Properties found that 51% of young renters reported they experienced a rent increase in the past year, with an average increase of 30%. Of these renters, less than one in 10 said they had the resources to cover the increase without changing their lifestyle. The remaining 93% plan to or have already acted, most notably cutting back on extra purchases (54%), looking for a new job or side gig (39%), and looking for a new place to rent or live (35%). Almost one in four (22%) said they'd consider using their credit cards to cover the rent. Roughly one in five (17%) would consider asking a friend or family for help with rent, while 12% would consider adding a roommate to help defray costs, and 7% would consider selling their car.
“Rate hikes are also affecting renters across the country. As interest rates increase, so too does the cost of construction and homebuying, which in turn constrains housing construction and supply, and increases the demand for rental housing,” added Rep. Waters. “Indeed, rent prices have risen nationwide by 18% during the pandemic, with some communities like New York City experiencing more than 40% rent increases.”
Click here to read the full letter from Rep. Waters to Federal Reserve Chair Jerome Powell.