Rep. Maloney Examines Rising Mortgage Rates and Affordable Housing Access

WASHINGTON, DC — At today’s Financial Services Committee hearing titled “The Need for Bold Investments in Fair and Affordable Housing to Combat Inflation,” Congresswoman Carolyn B. Maloney (D-NY), senior member of the committee and co-author of the Affordable Housing Preservation Act, advocated on behalf of homeowners and renters as they deal with the impact of rising interest rates.

During the hearing, Rep. Maloney stated, “Madam Chairwoman, I thank you for holding this hearing and I thank you for focusing on the need for more housing. It is a persistent problem, the affordability of housing in my own district, and I would say in my city, my state, and clear across this country. I would say the raising of interest rates have worsened affordability for home buyers and homeowners, and I would say even renters. For example, between April 2021, and April of this year, mortgage rates increased by nearly two basis points, and the median home price rose by over $50,000. The monthly cost of home ownership which includes a monthly payment on a 30-year mortgage, property taxes, property insurance, mortgage insurance grew by at least $500 a month, but in some cases in metropolitan areas it's grown by over $1,000 a month.

She then asked Mr. Mark Zandi, Chief Economist at Moody’s Analytics, “Does the raising of these interest rates contribute to the increased cost of housing for homeowners, which is the goal of most families and renters in this country?”

Mr. Zandi replied, “Thank you Congresswoman for the question. Yes, clearly it does. I think your statistics strike that point quite clearly. I will point out though that, to a significant degree, this is by design. So, the Federal Reserve is working hard to slow the economy's growth to quell the wage and price pressures. The most rate sensitive sectors of the economy are going to suffer the most as a result. Housing, single-family housing is the most rate sensitive sector of the economy. If you want to buy a home most people have to get a mortgage, and thus the rate sensitivity. So unfortunately, this is by design, but it does bring up the broader point that housing affordability is going to be a long-term issue, even when we get to the other side of this and get inflation back in and interest rates back down. Homeownership is going to be under significant pressure going forward. So, it is about supply in the near term, but I do think longer run we should also think about ways to improve affordability for lower income disadvantaged groups, and demand side policies will become more important at that point in time. But in the here and now, the reduction in affordability is by design. The Fed is working to slow the economy's growth, and they're doing it by hitting the housing single family housing market very hard.

Rep. Maloney continued, “There would be other ways to address inflation that's in our economy, I would venture to say housing has not caused the inflation in our country. It's more caused by the war in Ukraine, the war in Afghanistan and the disruption of our supply chain. Why don't we address those causes, as opposed to attacking housing, and the affordability of housing? I'm concerned about the impact is going to have on my constituents and other Americans to be able to afford a home with these interest rates going so high.

Rep. Maloney then asked, “My question is, could we change our policy to have a 50-year mortgage and possibly alleviate some of the pressures homeowners face in making their monthly payments? And I would add that this housing Inflation affects renters too because when the mortgage goes up, and then the rent also goes up. So, I would like your take on changing it from a 30 year which is really the standard that we have in America to a 50 year mortgage so that you can lower the rate and allow people who are confronting constrictions in their income to afford homeownership.

Mr. Zandi responded, “It's interesting idea. I would say the United States is very unusual compared to every other country with a few exceptions to having the 30-year fixed rate loan. Most countries have much shorter mortgages adjusted immediately as market interest rates are two year or three or five year and that's because of Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac allow for the 30-year fixed rate mortgage to be the bread-and-butter mortgage in United States. Right now, that's insulating homeowners from this run up in interest rates. I don't know that a 50-year mortgage would advance the ball Congresswoman only because the typical American household lives in their house for no more than ten years. So very, very few people would actually live in that house over that period of time. What I would do though is throw out another idea, assumability of mortgages. Right so you get a mortgage at a lower mortgage rate, and when you move you can take that mortgage with you. FHA has some mortgages like that. That might be an idea that would be very helpful in helping insulate the housing market and homeowners and improving affordability in the longer run.