To the Federal Reserve: "If you raise interest rates again, we will experience a hard landing!" American real estate developers and banks can't take it anymore.

Real estate and banking industries are calling on the Federal Reserve to stop raising interest rates. They are concerned that with the backdrop of soaring housing costs and a "historic shortage" of homes for sale, further rate hikes by the Fed could potentially accelerate a hard landing for the US economy.

In a letter addressed to the Federal Reserve Board and Chairman Jerome Powell on Monday, the real estate and banking industries expressed their concerns about the direction of monetary policy and its impact on the already struggling real estate market.

The National Association of Home Builders, the Mortgage Bankers Association, and the National Association of Realtors stated that they wrote the letter to convey the shared deep concerns of their members, namely that the ongoing uncertainty about the Fed's rate path is leading to recent rate increases and volatility.

These organizations are urging the Fed to "refrain from considering further rate hikes" and to "refrain from actively selling its holdings of mortgage-backed securities, at least until the real estate market stabilizes."

We urge the Fed to take these simple measures to ensure that the industry does not accelerate the hard landing that the Fed is desperately trying to avoid.

The Fed initiated its most aggressive rate hike cycle in forty years in March of last year, with a cumulative increase of 525 basis points so far. The benchmark federal funds rate is currently fixed in the range of 5.25%-5.5%, the highest level in twenty-two years.

In recent days, some officials have taken a dovish stance, suggesting that the Fed may postpone further rate hikes as it assesses the impact of previous hikes on various sectors of the economy.

Meanwhile, the real estate market is grappling with limited inventory. Since the early stages of the COVID-19 pandemic, US home prices have risen by nearly 30%, while sales volume has declined by over 15% compared to a year ago.

The letter points out that rate hikes have exacerbated housing affordability and caused additional disruptions to the real estate market, which is already struggling to adapt to a significant decline in mortgage withdrawals and home sales. What is even more concerning is that these market challenges are occurring against the backdrop of a historic shortage of homes for sale.

Powell acknowledged the turmoil in the real estate market at a recent meeting, stating at the July monetary policy press conference:

It's going to take some time to work through, and we hope to see more supply.

According to data from Bankrate, the average 30-year mortgage rate is currently just below 8%, while the average home price has climbed to $407,100, with available inventory equivalent to only 3.3 months. The National Association of Realtors estimates that inventory needs to double in order to bring down prices.

The letter states:

The speed and magnitude of these rate increases, and the resulting industry turmoil, are painful and unprecedented in the absence of larger-scale economic turmoil.

It also notes that the spread between 30-year mortgage rates and 10-year Treasury yields is at a historic high, and that housing costs are a major driver of CPI inflation.

The Fed has taken measures to reduce its bond holdings, particularly reducing its holdings of mortgage-backed securities by nearly $230 billion since June 2022. However, the Fed is passively reducing its holdings (not reinvesting when bonds mature) to achieve this goal. Some people are concerned that the Federal Reserve may become more aggressive and start actively selling the mortgage-backed securities it holds in the market. However, it has not yet announced such a plan.