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President Biden and his economic team are concerned that rising mortgage rates and housing costs are hurting Americans and hurting his re-election bid, and are implementing new measures to make housing more accessible and affordable. I’m looking for a way.
Biden’s upcoming budget request will ask Congress to pass a number of initiatives to build more affordable housing and help some Americans afford homes. The president is also expected to address housing affordability for both homeowners and renters in his State of the Union address next week, according to people familiar with the speech plan.
On Thursday, administration officials announced some relatively modest executive actions, including steps to increase the supply of manufactured housing. White House officials said this week they would announce “additional steps we will take to reduce housing costs.”
The increased focus on housing affordability comes as Congressional Republicans attack Biden over high mortgage rates and housing costs, and the president’s allies argue that these costs hurt working-class voters. has warned that Biden 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 policy, and the White House is careful not to appear to be pressuring the central bank to cut rates. Federal Reserve officials have indicated they expect to begin lowering rates before the end of the year.
A new study by economists at Harvard University and the International Monetary Fund, including former Treasury Secretary Lawrence H. Summers, finds that despite low unemployment and healthy growth, high mortgage rates and other borrowing costs are They suggest that this is contributing to the relatively gloomy mood towards the economy. . These costs could weigh on consumer confidence and support Biden’s re-election hopes.
“If you were Biden, you would support continued declines in inflation and Fed rate cuts,” Harvard University economist Judd N.L. Kramer, one of the paper’s authors, said in an interview. Told. “Consumers are more aware of these borrowing costs than we are willing to admit, so the president should be especially mindful of that,” he added.
Mr. Biden has a habit of asking aides about the current state of mortgage rates. Mortgage rates have more than doubled since he took office as the Fed raised interest rates to combat the worst inflation in 40 years.
The average interest rate on a 30-year mortgage rose from less than 3% in 2021 to nearly 8% last fall. It has fallen slightly this year, but has recently risen again and is now just under 7%.
This increase is driving up monthly payments for future homeowners. The typical monthly mortgage payment for a $400,000 home is slightly less than the national median sales price, but assuming a 20% down payment, it comes out to about $2,900 at 7% interest. . That’s about $800 a month more than paying 3 percent.
The added burden of high borrowing costs can make buying a home feel prohibitive, which is one reason polls show that young people in particular are concerned about house prices. Kramer said his research suggests that high mortgage rates are also frustrating existing homeowners, who may want to sell their homes but aren’t willing to pay the asking price. He said he is seeing the pool of potential buyers thinning because fewer people can pay.
The study, released Monday as a National Bureau of Economic Research working paper, seeks to unravel the mysteries of the Biden economy. In other words, given the strong job market and rising wages, why should consumer sentiment remain lower than historical evidence suggests? Rising.
The researchers (Kramer, Sommers, Karl Oskar Schulz of Harvard University, and Marijn A. Borhuis of the IMF) drew in part from a different method of calculating historical inflation rates to calculate housing, It concluded that borrowing costs for cars and housing are rising. That accounts for much of the decline in sentiment under Biden.
“Unlike modern economists, consumers consider the cost of money to be part of the cost of living,” they write.
White House economists did their own calculations on consumer sentiment. They found that persistently high food prices and lingering dissatisfaction with the coronavirus pandemic were primarily responsible for the downturn. We estimate that the housing crisis is helping to brighten consumers’ moods, as mortgage rates have fallen slightly in recent months.
Still, Biden aides say they know how difficult housing costs are for Americans. They are looking for ways to mitigate them, even by narrow margins, before the election.
The president has already pushed to pass an expansion plan to build more affordable housing, along with aid for some Americans looking to buy a home, including down payment assistance for people whose parents don’t own a home. Attempts to persuade Congress have failed. Republicans, who control the House, have not accepted such proposals this year.
Jared Bernstein, chairman of the White House Council of Economic Advisers, said in an interview that “the president believes that the long-term lack of affordable housing is one of the most important parts of our unfinished business.” I think it is,” he said.
The survey suggests that lower mortgage rates could quickly boost Biden’s support among consumers and his campaign. They suggest that a slight decline in interest rates in recent months is the reason for the spike in sentiment from late last year to early this year.
White House officials agree. But Biden was quick to add that he had no intention of forcing the Fed to cut rates.
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