High mortgage rates have Biden looking for housing aid

President Biden and his economic team, concerned that higher 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 upcoming budget request will call on 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 schedule.

On Thursday, government officials announced a handful of relatively modest executive actions, including steps to increase the supply of manufactured housing. White House officials said this week that they would “announce additional actions we are taking to reduce housing costs.”

The increased focus on housing affordability comes as Republicans in Congress attack Mr. Biden over high mortgage rates and housing costs, and as allies of the president warn those costs are hurting working-class voters he must win in November .

There is little Mr. Biden can do immediately and directly to impact mortgage rates. These are heavily influenced by the Federal Reserve’s interest rate policy, and the White House is careful not to give the impression of putting pressure on the central bank to cut rates. Fed officials have indicated they expect to start cutting rates this year.

New research from economists at Harvard University and the International Monetary Fund — including Lawrence H. Summers, the former Treasury secretary — suggests that high mortgage rates and other borrowing costs are contributing to Americans’ relatively gloomy mood about the economy, despite low unemployment and healthy growth. By weighing on consumer confidence, these costs could undermine Biden’s reelection hopes.

“If you’re Biden, you cheer that inflation will continue to fall and that the Fed will cut 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 those borrowing costs than we have given them credit for.”

Biden has made a habit of asking aides about the current state of mortgage rates, which have more than doubled since he took office and since the Fed raised rates to combat the worst inflation in four decades.

The average mortgage interest rate with a term of 30 years rose to almost 8 percent last fall, from less than 3 percent in 2021. This has fallen slightly this year, but has recently risen again and is now just under 7 percent.

Monthly payments for potential homeowners have skyrocketed as a result of the increase. The monthly payment for a typical mortgage 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. That’s about $800 more per month than the payment would be at a 3 percent rate.

The increased burden of high borrowing costs can make buying a home seem unaffordable, which is one reason polls show younger adults are especially concerned about home prices. Mr Cramer said his research suggested that high mortgage rates are also frustrating existing homeowners, who may want to sell their homes but have seen the ranks of potential buyers thin out because fewer people can afford to pay their asking price.

The study, published Monday as a National Bureau of Economic Research working paper, seeks to shed light on a puzzle of the Biden economy: why consumer confidence remains lower than historical evidence suggests it should be, given the strong labor market and the wages. rising.

Building in part on alternative ways of calculating past inflation rates, the researchers — Mr. Cramer, Mr. 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 Mr. Biden are responsible for much of the depression in sentiment.

“Consumers, unlike modern economists, consider the cost of money as part of their cost of living,” they write.

White House economists have made their own calculations about consumer confidence. They find this largely undermined by persistently high grocery prices and residual frustration over the coronavirus pandemic. When mortgage rates fell slightly in recent months, they calculated that housing problems helped improve consumer mood.

Still, Mr. Biden’s aides say they know how tough housing costs are for Americans. They are looking for ways to alleviate these problems, even at the margins, before the election.

The president has already tried and failed to convince Congress to pass comprehensive plans to build more affordable housing, along with aid to certain Americans trying to buy homes, such as down payment assistance for people whose parents do not have their own home. Republicans who control the House have not been receptive to these proposals this year.

“The president views the long-term affordable housing shortage as one of the most important unfinished business we have,” Jared Bernstein, chairman of the White House Council of Economic Advisers, said in an interview.

The research suggests that a drop in mortgage rates could quickly lift Mr. Biden’s fortunes among consumers and in his campaign. They suggest that the slight decline in interest rates in recent months was one reason why sentiment rose sharply at the end of last year and the beginning of this year.

White House officials agree. But, they are quick to add, Mr. Biden will not push the Fed to cut rates.