Sens. Elizabeth Warren (D-Mass.) and Sherrod Brown (D-Ohio), along with other members of Congress, sent letters to Jerome Powell, chair of the Board of Governors of the Federal Reserve System in advance of the Federal Open Market Committee (FOMC) meeting emphasizing the importance of lower interest rates for the housing market.
“For working Americans and small businesses who already feel the crush of inflation, higher housing costs and reduced access to credit will only make it worse,” Brown said. “Keeping interest rates high will be detrimental to American workers and their families and do little to bring down prices or promote moderate economic growth.
“While more must be done to address the fact that costs remain too high, it is becoming increasingly evident that restrictive monetary policy is no longer the right tool for combatting inflation, and I urge the Federal Reserve to ease monetary policy early this year.”
Warren’s letter echoed similar concern, noting how mortgage rates hit a 20-year high in 2023 “as a direct result of the Fed’s campaign of aggressive hikes.” While the Fed’s decision to pause rate hikes in September and December of last year was a good first step, Warren stated there is still work that needs to be done.
“High interest rates have also worsened our nation’s housing supply crisis,” she added. “As mortgage rates have gone up, the price of home listings has not significantly dampened. Rather, a decade-long dearth of supply (exacerbated by a complete suppression of home building at the onset of the COVID-19 pandemic) has kept costs high on homes across the country.
“In response to high interest rates and higher construction costs, developers have opted either to pivot to developing smaller properties or have chosen to pull back on construction. Additionally, the existing supply of homes has become less available to new buyers, as current homeowners are reticent to move and trade in their lower rates for a higher rate on the mortgage needed to purchase a new home.”
Brown referenced how higher interest rates give corporations an advantage over consumers in the housing market. While consumers only had access to elevated rates, corporations and investors have better access to cheaper Wall Street financing, enabling them to put in all-cash offers and take homes off the market.
The House Committee on Financial Services also brought up this growing issue during Department of Housing and Development Secretary Marcia Fudge’s testimony last month.
Reports after the FOMC showed the Fed left rates unchanged after its January meeting, and the Fed indicated it likely won’t cut rates in March. Powell stated it would not be appropriate to cut rates until the Fed gained “greater confidence” that inflation is approaching its 2 percent goal.