The Housing Market Faces Slowdown Due to Rising Mortgage Rates
Prominent organizations in the housing sector have expressed “deep worries” in a letter this week, calling on the Federal Reserve to cease the escalation of interest rates. This unusual public reprimand from leading business proponents, such as the National Association of Realtors and the National Association of Home Builders, highlights a significant deceleration in the housing market, largely attributed to surging interest rates. The letter was sent approximately three weeks prior to the Federal Reserve’s upcoming decision on rate hikes.
Mortgage rates have soared to their peak levels in over 20 years and continue to climb. Statistics unveiled on Thursday indicated that mortgage rates have risen for the fifth week in a row, as per Freddie Mac. “The rapidity and scale of these [mortgage] rate hikes, and the subsequent disruption in our sector, are distressing and unparalleled,” stated the letter from the housing organizations.
Exorbitant mortgage rates have considerably decelerated the housing market, as potential homebuyers are deterred by high borrowing expenses and current homeowners prefer to stick with mortgages that offer them comparatively low rates. Mortgage applications have plummeted to their lowest point since 1996, according to the Mortgage Brokers Association. Sales of pre-owned homes have also nosedived by over 15% compared to last year, as reported by the National Association of Realtors in August. The deceleration has coincided with a steep increase in costs for aspiring homebuyers. The average interest rate for a 30-year fixed mortgage has escalated to nearly 7.6%, as shown by Freddie Mac data.
The Federal Reserve has been aggressively increasing interest rates since last year, pushing up the 10-year Treasury yield, which loosely correlates with long-term mortgage rates. The Federal Reserve has been combating high inflation by increasing borrowing costs. Although inflation has decreased significantly from its peak of around 9% last summer, it still remains above the Federal Reserve’s target.
Advocates in the housing industry are urging the Federal Reserve to promptly take measures that would reassure investors and other market stakeholders that the cooling policies will end. Most importantly, these groups are asking the central bank to issue a statement abandoning the consideration of future rate hikes. In their correspondence to Federal Reserve officials, the housing organizations warned that an additional slowdown in the real estate sector could potentially push the U.S. economy into a recession. “We implore the Federal Reserve to implement these straightforward steps to ensure that this sector does not trigger the hard landing the Federal Reserve is earnestly striving to avert,” the letter concluded.