Warren, Senators to Federal Reserve: Cut Interest Rates to Help Address Affordable Housing Crisis
“The Fed’s decision to raise interest rates rapidly, and keep them high, has resulted in higher costs for home purchasers, higher rents, and reductions in new home and apartment building—and the job growth that comes with these investments.”
Washington, D.C. – U.S. Senators Elizabeth Warren (D-Mass.), a member of the Senate Banking, Housing, and Urban Affairs Committee, John Hickenlooper (D-Colo.), Jacky Rosen (D-Nev.), and Sheldon Whitehouse (D-R.I.) sent a letter to Federal Reserve (Fed) Chair Jerome Powell, calling on the Fed to reverse its troubling interest rate hikes that have driven mortgage rates to 20-year highs and have put affordable housing out of reach for too many Americans.
“(H)igh interest rates have aggravated the country’s persistent crisis of housing access and affordability. Mortgage rates have risen to 20-year highs in the past year—a direct result of the Federal Reserve’s campaign of aggressive hikes to the federal funds rate… As the Fed weighs its next steps in the new year, we urge you to consider the effects of your interest rate decisions on the housing market and to reverse the troubling rate hikes that have put affordable housing out of reach for too many,” wrote the senators.
Over the past year, the Fed’s aggressive rate hikes have driven mortgage rates to the highest levels in 23 years. The average rate on the 30-year fixed-rate mortgage rose to eight percent in mid-October, a drastic change from rates as low as three percent in 2021, and mortgage rates now sit at 7.33%—well above rates paid by homeowners over at least the past decade. These rates have significantly increased home purchasing costs for consumers: from December 2021 to December 2022, average monthly payments on 30-year fixed-rate mortgages rose from $1,400 to $2,045, a staggering 46% increase. Today, those payments have skyrocketed to $2,883.
The senators highlighted how interest rates have worsened the housing supply crisis. 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.
The senators also noted that the Fed’s rate hikes have driven up rental prices, which are astonishingly high compared to pre-pandemic levels. High interest rates contribute to higher rent costs in several ways: in addition to keeping renters in their units and constricting the supply of new rental units by making construction more expensive, high interest rates mean higher mortgage rates for landlords, who may pass off these costs in the form of rent hikes for their tenants.
“The ever-growing affordability crisis places a disparate burden on the shoulders of Black and Hispanic households, who own homes at rates 28.6 percentage points and 25.8 percentage points below white households respectively—disparities rivaling the racial homeownership gaps of the Jim Crow era… Home-ownership is a well-documented means of wealth creation, and the further exclusion of historically disenfranchised groups from home-ownership will only widen our country’s pronounced racial wealth gap,” continued the senators.
Given their concerns about the impacts of the Fed’s monetary policy on families struggling with the cost of housing, the senators are urging the Fed to reverse its aggressive rate hikes to the federal funds rate in 2024.
Senator Warren has been ringing the alarm bells about the serious dangers of Chair Powell’s continued interest rate hikes:
- In July 2023, Senator Warren sent a letter to Chair Powell, raising concerns about the disproportionate impact of the Fed’s monetary policy amid rising unemployment for Black workers.
- In May 2023, Senator Warren led lawmakers in a letter to Chair Powell, calling on the Fed to pause interest rate hikes and respect its dual mandate of maximum employment and price stability, particularly in the wake of recent turmoil in the banking system following the collapses of Silicon Valley Bank, Signature Bank, and First Republic Bank. The lawmakers expressed serious concerns that the Fed’s monetary policy strategy of more rate hikes could trigger a recession, throw millions out of work, and crush small businesses.
- In March 2023, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren questioned Chair Powell on the Fed’s monetary policy plan and its projection that the unemployment rate will rise sharply to 4.6% by the end of the year if the Fed continues to raise interest rates. Senator Warren highlighted that the Fed’s projections suggest that nearly 2 million people will lose their jobs, and that history shows that the Fed has a poor track record of containing moderate increases in unemployment.
- In November 2022, Senator Warren and Representative Madeleine Dean (D-Pa.) led their colleagues in sending a letter to Chair Powell, expressing concern and seeking answers about the Fed’s most recent economic projections, its intentions to continue to raise interest rates at a rapid pace, and its disturbing warning to American families that they should expect “pain” in the coming months.
- In July 2022, Senator Warren published an op-ed in the Wall Street Journal warning that the Fed’s decision to aggressively raise interest rates risks triggering a devastating recession.
- In June 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren called out Chair Powell for the Fed’s announced interest rate increases that wouldn’t address the key drivers of inflation. Chair Powell confirmed that the Fed’s interest rate increases will not bring down gas and food prices, two of the biggest drivers of inflation.
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