US Federal Reserve Chairman Jerome Powell attends a news conference in Washington, DC on March 22, 2023. Liu Jie/Xinhua via Getty ImagesThank you for reading this post, don't forget to subscribe!
Housing trade groups urged the Federal Reserve to immediately stop raising interest rates.
The NAHB, MBA and NAR warned that a hard landing was likely unless the Fed took two “simple steps.”
More rate hikes would pose broader risks to growth, “increasing the likelihood and magnitude of a recession.”
According to three housing industry trade groups, the Federal Reserve needs to take two “simple steps” to ensure it maintains accommodative conditions in the economy.
The National Association of Home Builders, the Mortgage Bankers Association and the National Association of Realtors warned in a letter to Fed Chairman Jerome Powell on Monday that further increases in interest rates would virtually guarantee a hard landing in the form of a recession.
The trade groups highlighted that the gap between 30-year mortgage rates and the 10-year Treasury yield is at historic levels, “indicating deep uncertainty about where the Fed is headed.”
“Further rate increases and continued widening pose broad risks to economic growth, increasing the likelihood and magnitude of a recession,” the letter warned.
Trade groups reported that housing activity in the US accounts for an estimated 16% of GDP. And if sales don’t bounce back soon, a sudden slowdown in new and existing home sales is likely to have a knock-on effect on the broader economy.
To improve the current situation, trade groups urged the Fed to make two statements:
1. “The Fed does not consider further rate hikes;”
2. “The Fed will not sell any of its mortgage-backed securities until the housing finance market stabilizes and mortgage-to-Treasury spreads normalize.”
The Fed is shrinking its balance sheet by not reinvesting up to $60 billion in Treasury bonds and $35 billion in mortgage-backed securities each month.
While the central bank is not selling assets directly, this so-called quantitative tightening process has reduced its balance sheet by about $1 trillion from a peak of $9 trillion in March 2022.
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“These steps will provide the market with greater certainty about the Fed’s rate path and its plans for the MBS portfolio and reduce volatility for traders and investors,” the letter argued.
Those two steps will also help improve housing sentiment, which will go a long way in bringing new supply of homes to the market.
And increased domestic supply will help offset inflationary shelter costs that have driven inflation last year.
The letter concluded, “We urge the Fed to take these simple steps to ensure that the sector does not face the difficult situation that the Fed has tried so hard to avoid.”
Read the original article on Business Insider