Thursday, July 25

High mortgage rates leave Biden looking for housing help

President Biden and his economic team, concerned that high mortgage rates and housing costs are hurting Americans and hindering his reelection bid, are looking for new ways to make housing more available and affordable.

Biden’s upcoming budget request will call on Congress to pass a series of initiatives to build more affordable housing and help some Americans afford to buy a home. The president is also expected to address the topic of housing affordability for both homeowners and renters in his State of the Union address next week, according to people familiar with the speech planning.

On Thursday, administration officials announced a handful of relatively modest executive actions, including measures to increase the supply of manufactured homes. White House officials said this week they will announce “additional actions we are taking to reduce housing costs.”

The increased focus on housing affordability comes as congressional Republicans attack Biden over high mortgage rates and housing costs, and as the president’s allies warn that such costs are hurting the working-class voters he needs to win in November.

There is little Biden can do immediately and directly to influence mortgage rates. These are heavily influenced by the Federal Reserve’s interest rate policies, and the White House is careful not to appear to be pressuring the central bank to cut rates. Fed officials have signaled they expect to start cutting rates this year.

New research by economists at Harvard University and the International Monetary Fund – including Lawrence H. Summers, former Treasury Secretary – suggests that high mortgage rates and other borrowing costs are contributing to Americans’ relatively gloomy mood regarding to the economy, despite low unemployment and healthy growth. . By weighing on consumer confidence, such costs could dampen Biden’s reelection hopes.

“If you are Biden, you root for inflation to continue to fall and for the Fed to lower interest rates,” Judd NL Cramer, a Harvard economist and one of the study’s authors, said in an interview. The president should be particularly concerned about these financing costs, he added, “because consumers are more aware than we thought.”

Biden has made a habit of asking aides about the current state of mortgage rates, which have more than doubled since he took office and as the Fed has raised rates to combat the worst wave of inflation in four decades.

The average 30-year mortgage rate jumped to nearly 8% last fall from less than 3% in 2021. It has fallen slightly this year, but has recently risen again and now sits just below 7%.

Monthly payments for prospective homeowners have soared because of the increase. The monthly payment for a typical mortgage for a $400,000 home – which is just below the median sales price nationwide – is about $2,900 at a 7% interest rate, assuming a 20% down payment. That’s about $800 more per month than you would pay at 3%.

The growing burden of high financing costs can make buying a home seem prohibitive, which is one reason why surveys show that young people in particular are worried about house prices. Cramer said his research suggests that high mortgage rates also frustrate existing homeowners, who may want to sell their home but have seen the ranks of potential buyers thin because fewer people can afford to pay the asking price.

The research, released Monday as a National Bureau of Economic Research working paper, seeks to shed light on a puzzle of the Biden economy: why consumer confidence remains lower than historical evidence suggests it should be, given that the market of labor is strong and wages are low. increasing.

Based in part on alternative methods of calculating inflation rates used in the past, the researchers – Cramer, Summers and Karl Oskar Schulz of Harvard, along with Marijn A. Bolhuis of the IMF – conclude that rising housing financing costs, cars and more so under Biden explain much of the depression in sentiment.

“Consumers, unlike modern economists, consider the cost of money to be part of the cost of living,” they write.

White House economists have done their own calculations on consumer confidence. They find that it is largely dragged down by persistently high food prices and residual frustration over the coronavirus pandemic. In recent months, as mortgage rates fell slightly, they calculated that housing issues were helping lift consumer sentiments.

However, Biden aides say they know how difficult housing costs are for Americans. They are looking for ways to alleviate them, even on the fringes, before the election.

The president has already tried and failed to get Congress to approve expanded plans to build more affordable housing units, along with aid for some Americans trying to buy homes, such as down payment help for people whose parents They don’t own a house. Republicans who control the House have not been receptive to these proposals this year.

“The president views the long-term shortage of affordable housing as one of the most important outstanding issues we have,” Jared Bernstein, chairman of the White House Council of Economic Advisers, said in an interview.

Research suggests that a drop in mortgage rates could quickly lift Mr. Biden with consumers and his campaign. They suggest that the slight decline in rates in recent months was why sentiment rose at the end of last year and the beginning of this one.

White House officials agree. But, they hasten to add, Biden will not push the Fed to cut rates.