Massachusetts Democratic Senator Elizabeth Warren and three other Democratic lawmakers wrote to the Federal Reserve in recent days, urging policymakers to lower interest rates as soon as possible to help reduce housing costs.

“As the Federal Reserve weighs its next moves, we urge you to consider the impact of interest rate decisions on the housing market,” the senators wrote to Powell on Sunday.

The letter states that "the direct impact of these astronomical interest rates is a significant increase in the overall cost of home ownership for the average consumer."

"We have received the letter and plan to respond," a Fed spokesperson told CNBC. The Fed begins a two-day policy meeting on Tuesday, the first rate decision of 2024, when officials are expected to discuss when to begin cutting interest rates.

Expensive housing costs have dampened public confidence in the outlook for economic growth, a top issue weighing on Biden’s 2024 re-election campaign.

Warren, a frequent critic of the Fed's rate hikes, was joined by Reps. John Hickenlooper of Colorado, Jackie Rosen of Nevada and Sheldon Whitehouse of Rhode Island. Warren and her colleagues have argued that higher mortgage rates have exacerbated the housing supply crisis and that higher rates have also put upward pressure on rental costs.

The Fed in December said it could cut interest rates three times in 2024 as inflation cools, helping boost consumer sentiment toward the economy.

There was also some relief in the housing market, which has been under pressure for the past few years due to record-high interest rates and a persistent supply shortage. Mortgage demand surged in January, suggesting that homebuyers are returning to a market they had avoided for months.

Warren said the Fed’s decision to pause its rate hikes beginning late last year was a “welcome first step” that paved the way for mortgage rates to fall and provided at least some relief to the market.

The average rate on a 30-year fixed-rate mortgage was 6.69% as of Jan. 25, up from 6.6% the previous week, according to Freddie Mac.

“Interest rates remain too high for many American households, who are already unable to afford to rent or buy their first home,” the senators wrote.

Warren and her colleagues argue that the Fed's aggressive rate-raising campaign has contributed to a deterioration in the nation's housing supply in two key ways. First, high borrowing costs discourage developers from building new homes, exacerbating supply shortages. Second, there is a "lock-in effect," where existing homeowners with lower mortgage rates are reluctant to list their homes because they would need to get a new mortgage at a higher rate.

Driven by historically low inventory, home sales last year were only 4.09 million, the lowest level since 1995.

The real estate industry has made a similar argument to the Fed.

Last October, the National Association of Home Builders, the Mortgage Bankers Association and the National Association of Realtors wrote to Powell expressing "deep concern" about the harm the Fed's policies were doing to the U.S. housing market. "This is exacerbating housing affordability," the housing industry groups wrote in the letter.

Warren and her colleagues also warned in their Sunday letter that the Fed's policies could widen the wealth gap. They noted that homeownership rates for black and Hispanic households are much lower than for white households. "The Fed has signaled a willingness to cut rates, and markets have responded accordingly," they wrote. "Working families are already struggling with high housing costs and need relief now."

The article is forwarded from: Jinshi Data