by President Biden and his economic team, concerned that high mortgage rates and housing costs are hurting Americans and hampering his re-election bid, are looking for new ways to make housing more available and affordable.
Biden’s next budget request will ask Congress to pass a series of initiatives to build more affordable housing and help certain Americans buy a home. 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’s planning.
On Thursday, administration officials announced a handful of relatively modest executive actions, including measures to increase the supply of manufactured housing. White House officials said this week they would announce “additional steps 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 those costs are hurting working-class voters who needs to win in November.
There is little Biden can do immediately and directly to affect 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. Federal Reserve officials have signaled they hope to begin cutting rates this year.
New research from 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 pessimistic mood about the economy. the economy, despite low unemployment and healthy growth. . By hurting consumer confidence, those costs could be depressing Biden’s re-election hopes.
“If you’re Biden, you’re applauding inflation continuing to go down and the Federal Reserve lowering interest rates,” Judd NL Cramer, a Harvard economist and one of the paper’s authors, said in an interview. The president should be especially concerned about that, he added, “because consumers are more aware of what we’ve given them credit for in those borrowing costs.”
Biden has made a habit of asking his advisers about the current state of mortgage rates, which have more than doubled since he took office and when the Federal Reserve raised rates to combat the worst bout of inflation in four decades.
The average 30-year mortgage rate jumped to nearly 8 percent last fall from less than 3 percent in 2021. It has declined slightly this year, but recently rose again and now sits just below 7 percent.
Monthly payments for prospective homeowners have skyrocketed because of the increase. The typical monthly mortgage payment for a $400,000 home (which is just below the median sales price nationwide) is about $2,900 at a 7 percent interest rate, assuming a 20 percent down payment. percent. That’s about $800 more per month than the payment would be at a 3 percent rate.
The increasing burden of high borrowing costs can make buying a home seem prohibitive, which is one reason why surveys show that younger adults in particular are worried about home 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 dwindle because fewer people can afford to pay the asking price.
The research, released Monday as a working paper from the National Bureau of Economic Research, seeks to shed light on a conundrum of the Biden economy: why consumer confidence remains lower than historical evidence suggests it should be. , given that the labor market is strong and salaries are high. growing.
Based in part on alternative ways of calculating inflation rates in the past, the researchers (Cramer, Summers and Karl Oskar Schulz of Harvard, along with Marijn A. Bolhuis of the IMF) conclude that rising borrowing costs for homes, cars and more under the Biden administration explain much of the depression in sentiment.
“Consumers, unlike modern economists, consider the cost of money part of their cost of living,” they write.
White House economists have made their own calculations on consumer confidence. They find it is largely affected by persistently high food prices and residual frustration with the coronavirus pandemic. In recent months, when mortgage rates fell slightly, they estimated that housing problems were helping to lift consumer morale.
Still, Biden’s advisers say they know how difficult housing costs are for Americans. They are looking for ways to alleviate them, even at the margins, before the elections.
The president has already tried, unsuccessfully, to persuade Congress to pass expansive plans to build more affordable housing units, along with help for certain Americans trying to buy homes, such as down payment assistance for people whose parents don’t own homes. home. Republicans who control the House have not been receptive to those 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 boost Biden among consumers and on his campaign. They suggest that the slight drop in rates in recent months was one of the reasons why sentiment rose late last year and early this year.
White House officials agree. But, they hasten to add, Biden will not pressure the Federal Reserve to cut rates.
