Reasons to Keep Federal Reserve Away from Mortgage Market

Déjà Vu All Over Again

To this conservative, a recent ⁤New York Times column that encouraged the Federal Reserve to take actions focused on bringing down mortgage rates brought to mind the old Yogi Berra quip about “déjà vu ‍all over again.” Have federal officials intervene to make ⁢mortgages more affordable and ⁤accessible? What on Earth could go wrong???

Sarcasm aside, the article accurately diagnoses the problems facing the ⁣housing market, and ultimately the‍ economy, as a result of current interest⁢ rate policies. But particularly given events⁢ of the last ⁣several years, count this conservative highly skeptical that the “solution” to a problem caused in⁤ part by poor Federal Reserve policy can come via yet another ‍policy intervention⁤ by Fed officials.

‘Frozen’ Markets

The opinion column, by investment banker Daniel Alpert, observes‍ what I wrote about a​ few short weeks ago: Namely, the spike in​ mortgage rates — caused by ​the Federal Reserve rapidly raising ‍its interest rate benchmark since early​ 2022 to fight inflation — has effectively frozen the housing market. Households that locked in mortgage rates at or below‍ 3 percent during ‍the pandemic will not ​want to move if doing so means they would have to pay current mortgage rates approaching‍ 8 percent.

Many ‌signs point to stasis: The supply of houses on the market remains low, as people⁤ do not want to sell. Because mortgage rates have spiked while prices have maintained ‍their pandemic-level ⁣highs,⁢ would-be ​buyers feel an affordability squeeze; many have stopped looking.

Alpert also observes another important knock-on effect: ‍With few people able to⁣ purchase homes — because ‌of the low inventory on the market, ⁢and because of the combination of high ‍mortgage rates and high prices — rents will likely increase.⁤ And with rents​ comprising one element of monthly inflation, a policy change (i.e., raising interest rates) designed​ to lower inflation could help to raise it, at least ⁣when it comes to rent and housing costs.

Mortgage Market Meddling

Though aptly diagnosing the problem, Alpert ⁢misfires on the solution. He proposes⁣ that the Federal Reserve “should immediately ⁣reverse course and buy mortgage securities to help moderate consumer mortgage rates. It can keep selling Treasury bonds if it so chooses. This will allow ⁤the Fed to raise non-housing interest rates” to help⁤ slow​ inflation ‌“while also allowing ⁤the housing market to resume functioning normally ​again.”

The idea holds superficial appeal but could prove difficult to execute. ‍Alpert himself admits that his ‌proposal asks the Fed to “tap the gas” — that is, increase demand in the housing market by artificially lowering mortgage rates — “while it [is] pumping the brakes,” slowing the non-housing portion of the economy ‌by keeping interest rates high.

Federal Reserve Chairman Jerome Powell has spent time at press conferences over ⁤the past year-plus talking about the factors Fed officials consider when developing interest rate policy.‌ Comparing ‌monetary policy to a car trip, Powell noted the Fed must weigh the destination (i.e., the inflation measure), the speed (i.e., in what increments to raise interest rates),‌ and the acceleration (i.e., whether and when to slow down and stop raising rates).

Adding yet⁤ another variable to the equation by separating ⁤mortgage rates from ‍other types ‌of interest rates — forcing the Fed to analyze how much “gas” versus how much “brake,” to continue with the driving analogies — will only increase the complexity.

Recall too that the Fed doesn’t exactly ​have a ⁤sterling track record of ‌late when it comes to interest‍ rate policy. Powell‌ and others have⁤ admitted that the Federal Reserve should have started raising interest rates sooner, perhaps in mid-2021, to head off incipient signs ‌of rising inflation.

Had the Federal Reserve acted earlier, prices might
And avoid a potential sharp increase in housing costs.”

What role does PAA play in​ mitigating and controlling housing costs to prevent an unwarranted escalation

The PAA (Public Accountability Act) plays a crucial role in mitigating and controlling housing costs to prevent an unwarranted escalation. Here are ⁢a ‍few ways in which PAA​ helps in this​ regard:

1. Transparency and Accountability: The PAA​ ensures transparency and accountability in the housing market by requiring⁤ developers, real estate ​agents, and other stakeholders to⁤ disclose ‍all relevant information about housing costs, including the pricing methodology, fees, and‍ charges.⁤ This helps potential ⁢buyers or renters make informed decisions ​and prevents any hidden costs from artificially inflating housing prices.

2. Regulation of Housing Market:​ PAA empowers regulatory bodies to ‍monitor and regulate the housing market⁣ to prevent any unwarranted price escalations. This can be⁢ done through‍ mechanisms such ‍as rent control policies, zoning⁣ regulations, ‌and oversight on real estate transactions. By having​ a regulatory framework in place, the PAA ensures that the housing market operates ⁢fairly and in the best interest of⁤ the public.

3. Affordable Housing Initiatives:‌ PAA often encompasses provisions for affordable housing initiatives. These initiatives aim to ⁣provide affordable housing ‌options for low-income individuals and families. By subsidizing housing costs or providing incentives for developers to‍ construct affordable housing units, ⁣the PAA ‍helps in mitigating soaring housing costs and ensures that housing remains accessible to those in‍ need.

4. Monitoring and Reporting: PAA may require⁤ regular monitoring and reporting on housing costs⁤ to identify any alarming trends ​or market practices⁣ that could lead to an unwarranted escalation. This ​allows policymakers⁢ to take ⁤timely actions, ‌such as implementing targeted interventions or‌ adjustments in regulations, to control housing⁣ costs⁢ and prevent ⁢any potential bubble in ⁤the market.

Overall, the PAA plays a crucial role in⁤ mitigating and controlling housing costs⁤ by ⁣promoting transparency, regulating the market, facilitating affordable housing initiatives, and monitoring market dynamics. ⁢By doing so, ‌it aims to prevent​ any unwarranted escalation in housing costs and ensure affordable and accessible ⁢housing for all.