Concerned that rising mortgage rates and housing costs are hurting Americans and preventing his re-election, President Biden and his economic team are looking for new ways to make housing more available and affordable.
Mr. Biden’s upcoming budget request will call on Congress to pass a series of initiatives to build more affordable housing and help some Americans buy a home. The president is also expected to address housing affordability for both landlords and renters in his State of the Union address next week, according to people familiar with the speech 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 will announce “additional actions we are taking to reduce housing costs.”
The increased focus on affordable housing comes as congressional Republicans attack Mr. Biden over high mortgage rates and housing costs, and as the president’s allies warn that those costs are hurting the working-class voters he needs to win over. In November.
There is little that Mr. Biden can do directly and immediately 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 lower rates. Fed officials have indicated they expect to begin cutting interest rates this year.
New research by 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. Weighing on consumer confidence, that cost could dent Mr. Biden’s re-election hopes.
“If you’re Biden, you’re asking for inflation to continue to fall and for the Fed to cut interest rates,” Judd N.L. said in an interview. Cramer, a Harvard economist and one of the paper’s authors. The president should be particularly concerned about this, he added, “because consumers know more about these borrowing costs than we’ve given them credit for.”
Mr. 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 as the Fed raised rates to combat the worst period of inflation in four decades.
The average 30-year mortgage rate jumped to nearly 8 percent last fall from below 3 percent in 2021. It has fallen slightly this year, but has recently rebounded and is now just below 7 percent.
Monthly payments for prospective homeowners have skyrocketed due to the increase. The monthly payment on a typical mortgage on a $400,000 home — which is just below the national median sales price — is about $2,900 with an interest rate of 7 percent, 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 prohibitive, which is one reason polls show younger adults are especially concerned about home prices. Mr. Cramer said his research suggested high mortgage rates are also discouraging existing homeowners, who may want to sell their home but have seen the ranks of potential buyers dwindle because fewer people can afford it. to pay the asking price.
The survey, released Monday as a National Bureau of Economic Research working paper, seeks to shed light on a puzzle of the Biden economy: why consumer sentiment remains lower than historical data suggests, given that the labor market is strong and wages increasing.
Relying 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 the rising costs of lending for homes, cars and more under Mr. Biden account for much of the depression in sentiment.
“Consumers, unlike modern economists, consider the cost of money to be part of their cost of living,” they write.
White House economists have done their own calculations on consumer sentiment. They find that it is largely driven by persistently high grocery prices and residual frustration over the coronavirus pandemic. In recent months, as mortgage rates eased slightly, they reckoned housing issues were helping to improve consumer sentiment.
But aides to Mr. Biden say they know how difficult housing costs are for Americans. They are looking for ways to relieve them, even on the sidelines, in the pre-election period.
The president has already tried and failed to get Congress to pass sweeping plans to build more affordable housing, along with help for some Americans trying to buy homes, such as down payments for people whose parents don’t own homes. Republicans who control the House have not been receptive to those proposals this year.
“The president sees the long-term affordable housing shortage as one of the most important pieces of unfinished business we have,” Jared Bernstein, chairman of the White House Council of Economic Advisers, said in an interview.
The survey shows that a drop in mortgage rates could quickly endear Mr. Biden with consumers and his campaign. They suggest that the slight drop in interest rates in recent months was one reason sentiment soared late last year and early this year.
White House officials agree. But they are quick to add that Mr. Biden will not pressure the Fed to cut interest rates.
