#interest-rate reduction – Federal Financial Analytics

8 04, 2024

M040824

Shane Smith2024-04-08T13:31:04-04:00April 8th, 2024|6- Client Memo|

Why Lowering Interest Rates Now Makes Housing Even More Unaffordable

As we’ve noted, Sen. Warren and a raft of progressive Democrats are emphatically demanding that the Federal Reserve lower interest rates to promote affordable housing. However, as a new Federal Reserve Bank of Dallas note confirms, low rates don’t necessarily make it easier to buy a home because house prices generally rise as rates fall. Worse still, ultra-low real rates eviscerate not just the ability of all but the well-heeled and -housed to save for a down payment, but also for much else that ensures economic resilience and long-term security. Simply put, lower for longer makes the U.S. still more economically unequal, not exactly what progressives want.

m040824.pdf…

Karen Petrou: Why Lowering Interest Rates Now Makes Housing Even More Unaffordable

Shane Smith2024-04-08T09:30:15-04:00April 8th, 2024|The Vault|

As we’ve noted, Sen. Warren and a raft of progressive Democrats are emphatically demanding that the Federal Reserve lower interest rates to promote affordable housing. However, as a new Federal Reserve Bank of Dallas note confirms, low rates don’t necessarily make it easier to buy a home because house prices generally rise as rates fall. Worse still, ultra-low real rates eviscerate not just the ability of all but the well-heeled and -housed to save for a down payment, but also for much else that ensures economic resilience and long-term security. Simply put, lower for longer makes the U.S. still more economically unequal, not exactly what progressives want.

The assumption in Sen. Warren’s letter and a like-kind one from Chair Brown is that lower mortgage rates reduce the carrying cost of a mortgage and thus make it easier for lower-income households to qualify for a loan. However, this seemingly-obvious conclusion assumes that housing markets are static and, as any real-estate agent will tell you, they aren’t.

When rates go down, demand goes up and prices do the same. Or, as the Dallas Fed study observes, a one-percentage-point hike in short-term rates usually lowers house prices by 7.5 percent over two years. Just as intuition suggests that easy money spurs homebuying, so it is that tight money reduces demand and prices respond accordingly.

Or, they do in a normal market and there haven’t been any of these since the Fed sent interest rates below inflation-adjusted zero in 2008 and kept them …

Daily031924

Arezou Rafikian2024-03-20T11:57:36-04:00March 19th, 2024|2- Daily Briefing|

Progressive Dems Keep Pressure on Powell

Ahead of today’s FOMC meeting, progressive Democrats again sent a letter to Chair Powell calling for an interest-rate reduction timeline on grounds that higher-for-longer adversely affects the public good. Signed by Sens. Warren (D-MA), Sanders (I-VT), and nineteen House Democrats, the letter calls the Fed’s monetary policy “excessively contractionary,” stressing its negative impacts on the housing market and financial stability.

HFSC GOP Takes on GSE Title-Insurance Pilot

Laying pipe before HFSC’s housing hearing tomorrow, Subcommittee Chairs Davidson (R-OH) and Huizenga (R-MI) along with Rep. Garbarino (R-NY) sent a letter to FHFA Director Thompson Friday sharply criticizing her for undue politicization given the President’s recent call for title-insurance reform. Th

HFSC GOP Takes on GSE Title-Insurance Pilot

Joining attacks against the Basel end-game rules, Republican CFTC Commissioner Mersinger today criticized the proposal for its impact on derivatives markets. It would, she said, disincentivize banks from offering client-clearing services to derivatives end-users, exacerbate the downward trend in the number of entities offering client clearing services, challenge the portability of customer positions, and increase systemic risk.

KC Fed Study: Vulnerable Crypto Users at Financial Risk

Buttressing calls for cryptoasset standards, the Kansas City Fed today published an article finding that crypto transactors are less financially literate and more risk tolerant compared to nonowners, stressing the importance of improved education regarding cryptoasset risks. C

HFSC GOP Goes after Climate-Risk Standards

HFSC’s majority staff memo on Thursday’s hearing indicates that the panel of top federal bank supervisors …