Three major organizations representing the housing industry, The National Association of Home Builders, the Mortgage Bankers Association and the National Association of Realtors, all wrote to the Federal Reserve conveying “profound concern” over the Fed’s high interest rates. They fear that sky-high interest rates are not only slowing housing sales, but that it might lead to a recession in the market. This comes as the Fed is reportedly contemplating further rate hikes to combat inflation.
What is This Letter About?
The letter from these housing industry representatives addressed the Federal Reserve Board of Governors, as well as Chairman Jerome Powell, discussed the impact of the Fed’s policy on inflation. In particular, they expressed concerns over its consistently high interest rates, and rumored plans for potentially continuing to increase interest rates in the future. It asked the Fed to avoid contemplating these future interest rate hikes, and to at least freeze rates to what they are now.
Why Did They Write it?
This letter was precipitated by concerns that further interest rate hikes could result in a major economic downturn in the near future. In particular, they fear that if mortgage interest rates climb any higher, it could lead to a “hard landing” that would lead to substantial pain in the housing market, and perhaps the broader economy. If that happened, it could hurt real estate investors, developers, homebuilders and homeowners across the country.
Why is the Fed Thinking of Increasing Interest Rates?
The Federal Reserve has supposedly been considering further interest rate hikes in order to combat inflation. Typically, the Federal Reserve tries to keep inflation at between 2% and 3%, but it is currently over 3.5%. While this is not as worryingly high as it was last year, when inflation reached an average of over 6%, it is still higher than they would like it to be. However, there is fear that pursuing this ideal inflation rate could cause more harm than good, if it results in a recession in the housing industry.
What Happens Now?
Now, it is up to the Federal Reserve to decide whether it is more concerned about higher-than-average inflation, or the potential negative impact of further interest rate hikes. If it freezes current interest rates, there is a chance they may steady or start to come down, relieving pressure on the market. However, if they continue to raise interest rates, it could result in severe economic effects across the housing industry.
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