The National Association of Home Builders (NAHB), the Mortgage Bankers Association (MBA), and the National Association of REALTORS?(R) (NAR) have issued a collective plea to the Federal Reserve to express their concerns of continuing interest rate increases. This request comes as mortgage rates soar to a 23-year high and mortgage application activity plummets to levels not seen since 1996.

In a joint letter sent on October 9, the housing and banking organizations conveyed their deep concern regarding the Fed's uncertain rate trajectory, which they believe has contributed to recent interest rate surges and market instability. They stated that this volatility has compounded the challenges in housing affordability and further disrupted a real estate market already strained by a significant reduction in both mortgage origination and home sales volume. These difficulties come amid a historically low supply of affordable housing.

 
The groups underlined the historic gap between 30-year mortgage rates and the 10-year Treasury yield, which currently stands at exceptionally high levels. This disparity between the current spread and the long-term average indicates that mortgage rates for homebuyers are at least 120 basis points higher than they should be. For an average $300,000 mortgage, this results in an additional $245 per month for today's homebuyers.

The organizations also identified shelter costs as a major contributor to recent inflation. They found that in the August Consumer Price Index, consumer prices increased by 3.7%, with shelter costs surging by 7.3%, and that shelter inflation was responsible for 90% of the gain in consumer prices in July.

To combat inflation and aid in the affordability of housing, the letter emphasized the importance of facilitating the construction of attainable, affordable housing. However, the organizations expressed concern that further rate increases would impede this goal by limiting lot development and home construction, exacerbating the housing supply shortage, and pricing out numerous households from homeownership.

In response, NAHB, MBA, and NAR have called on the Federal Reserve to make two decisive statements to the market:

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

https://www.nahb.org/blog/2023/10/fed-letter