No one can predict the future of real estate, but you can prepare. Find out what to prepare for and pick up the tools you’ll need at Virtual Inman Connect on Nov. 1-2, 2023. And don’t miss Inman Connect New York on Jan. 23-25, 2024, where AI, capital and more will be center stage. Bet big on the future and join us at Connect.

Uncertainty over the Federal Reserve’s next moves is disrupting the housing sector and threatening to send the U.S. economy into a tailspin, three prominent real estate industry trade groups warned in a letter Monday.

The joint letter from the Mortgage Bankers Association, National Association of Realtors and National Association of Home Builders urged Fed policymakers to promise they’re done hiking rates and have no plans to sell trillions of dollars of mortgage bonds that the central bank bought during the pandemic. It echoes concerns voiced on national television last week by MBA CEO Bob Broeksmit.

In a CNBC appearance Wednesday, Broeksmit urged Fed policymakers to “be clear that they’re done with rate increases” and to also “make clear that they’re not going to sell mortgage-backed securities off their balance sheets.”

In an attempt to keep the economy from crashing during the pandemic, the Fed not only brought short-term interest rates down to nearly 0 percent but bought trillions of long-term Treasurys and mortgage-backed securities (MBS) to bring interest rates down and encourage borrowing.

Fed has trimmed $1 trillion from balance sheet

Source: Board of Governors of the Federal Reserve System, Federal Reserve Bank of St. Louis

Mortgage rates dropped to historic lows until the Fed began tightening last year — not only by raising short-term interest rates but by trimming its massive holdings of government bonds and MBS.

So far, the Fed hasn’t sold any of those assets — it’s just allowing up to $60 billion in maturing Treasurys and $35 billion in MBS to roll off its books each month without replacing them.

But the fear that the Fed will actually sell MBS in the open market has widened the “spread” between 10-year Treasurys and mortgage rates, meaning mortgage rates are even higher than they should be, Broeksmit told CNBC.

Now NAR and NAHB have joined with the MBA in voicing those concerns, in writing, to Fed leaders.

“The difference between the current spread and the long-run average indicates mortgage rates for homebuyers across the country that are at least 120 basis points higher than they otherwise would be,” the trade groups said. “In other words, the uncertainty-induced mortgage-to-Treasury spread is costing today’s homebuyers an extra $245 in monthly payment on a standard $300,000 mortgage. Further rate increases and a persistently wide spread pose broader risks to economic growth, heightening the likelihood and magnitude of a recession.”

A spokesperson for the Federal Reserve declined to comment on the letter.

Most Fed policymakers signaled last month that they think the Fed will need to raise short-term interest rates at least one more time this year, and several — including Powell — have said they expect the Fed will have to pursue a “higher for longer” rate strategy to keep inflation in check.

Historically, Fed leaders have said that in trying to achieve the central bank’s dual mandate of fostering maximum employment while keeping inflation at bay, they make decisions based on the data that’s available to them.

But in a message to MBA members last week following his CNBC appearance, Broeksmit suggested that the group does have the ear of Fed policymakers.

“We are in regular conversation with senior leadership at the Fed and share real-time market color on both residential and commercial lending,” Broeksmit said in an email to members. “The state of the housing and real estate finance markets is key to the Fed’s overall outlook for the economy, and they constantly seek such market color from us. One thing we have gathered from this ongoing engagement is that they are keenly aware of how difficult housing market conditions are.”

Broeksmit also explained that, in his view, “Fed policy alone is not responsible for the recent rate instability,” saying Congress “must take steps to restore budget discipline and effective policymaking.”

The most recent rate spikes “started when Fitch downgraded the U.S. credit rating following the debt limit crisis and continued with the increase in Treasury issuance needed to cover growing deficits,” Broeksmit wrote. “Ongoing gridlock on Capitol Hill, including a ‘near miss’ government shutdown last week, continues to be a concern for financial markets, further driving up the price of government debt.”

The MBA, he said, “will continue to urge policymakers to stop the shutdown threats and come together to address budget and spending priorities that restore fiscal discipline.”

Get Inman’s Mortgage Brief Newsletter delivered right to your inbox. A weekly roundup of all the biggest news in the world of mortgages and closings delivered every Wednesday. Click here to subscribe.

Email Matt Carter

Show Comments Hide Comments
Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Thank you for subscribing to Morning Headlines.
Back to top
Only 3 days left to register for Inman Connect Las Vegas before prices go up! Don't miss the premier event for real estate pros.Register Now ×
Limited Time Offer: Get 1 year of Inman Select for $199SUBSCRIBE×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription