Affordable Housing Won’t Come From Bullying the Fed

The housing market is a big worry for Democrats as we move closer to US elections in November. It’s one of the primary reasons measures of consumer confidence remain depressed as a combination of high prices and high mortgage rates keep homes out of reach for many. You have to go back to the dark days of the early 1980s to find the last time Americans in the University of Michigan’s monthly sentiment survey were so downbeat when asked whether it was a good time to buy a home.

All of which explains why President Joe Biden floated the idea in his State of the Union speech in March of providing tax credits to potential homebuyers to help offset the highest mortgage rates in a generation. And also why the New York Times reported last week that some Democrats are urging Biden to take a page from Donald Trump’s playbook and attempt to bully the Federal Reserve into lowering interest rates.

In theory, these ideas sound great — they would presumably put homes within reach of more households and boost transactions. In practice, they would be a disaster. It’s even likely that the unintended effect would be making housing less affordable by pushing up mortgage rates and home prices.

Most all the data show that the problems with the housing market these days have little to do with demand. Sure, measures of housing affordability are near record lows, but the median price of existing homes has risen 8.2% to $393,500 since the Fed started raising policy rates in February 2022. Not only that, but at around 30, the number of days a home sits on the market before being sold is the same as it was in 2019 when mortgage rates were around 4%, instead of the current 7.50%, according to the National Association of Realtors. The percentage of first-time buyers is also similar at about 30%. But perhaps what is most remarkable is that the realtors group says 29% of homes sold above asking price in March!