US housing industry raises alarm on Fed’s monetary policies

“The speed and magnitude of these rate increases, and resulting dislocation in our industry, is painful and unprecedented in the absence of larger economic turmoil,” the coalition wrote in the letter addressed to Fed chairman Jerome Powell. “The spread between 30-year mortgage rates and the 10-year Treasury yield is at historically high levels, signaling deep-seated uncertainty about where the Fed is headed.

Read more: Federal Reserve interest rate announcement – just in

“The difference between the current spread and the long-run average indicates mortgage rates for homebuyers across the country that are at least 120 basis points higher than they otherwise would be. In other words, the uncertainty-induced mortgage-to-Treasury spread is costing today’s homebuyers an extra $245 in monthly payments on a standard $300,000 mortgage. Further rate increases… pose broader risks to economic growth, heightening the likelihood and magnitude of a recession.”

Beyond the immediate concerns, the coalition also drew attention to the bigger issue of rising shelter costs. They’ve flagged that these costs are a significant driver of recent inflation. The solution, they suggest, is to make it easier to build affordable homes. But the current interest-rate environment is making that tough.

“Sustained wide spreads or further increases in interest rates make this economic goal more challenging by limiting lot development and home construction, exacerbating housing supply, and pricing out millions of households from the goal of homeownership,” the letter read.