President Joe Biden’s push for huge government spending has contributed to higher interest rates across the board, putting mortgages for average Americans out of reach, according to experts who spoke to the Daily Caller News Foundation.
High-interest rates on debt made up the biggest increase in home unaffordability in September, contributing 0.9 index points to the decrease in housing affordability compared to 0.4 points for home prices, according to the Federal Reserve Bank of Atlanta. High mortgage rates, fueling the recent decrease in housing affordability, have been heavily influenced by Biden’s inflationary spending policies and the Federal Reserve’s rate hikes in response to rising prices, according to experts who spoke to the DCNF. (RELATED: Gov’t Sponsored Bank Judges Applicants’ ‘Diversity’ Before Handing Out Key Housing Grant Money)
“[The Federal Reserve] kept its foot on the gas pedal; they had the low zero interest rate policy, but then they also had quantitative easing, where they started buying treasuries and mortgage-backed securities, and of course, they flooded the market with cash, and that provided a lot of extra liquidity, but eventually, over time, that resulted in higher and higher prices,” Tobias Peter, co-director of the American Enterprise Institute’s Housing Center, told the DCNF. “But then, at the same time, you have the Biden administration — and to some extent the Trump administration which played a role in this too — who were doling out money left, right and center, like the stimulus checks that got sent out.”
Inflation peaked at 9.1% in June 2022 and has remained elevated above the Fed’s 2% target ever since, most recently measuring at 3.2% in October. In response to the high inflation, the Fed has raised its federal funds rate to a range of 5.25% and 5.50%, the highest point in 22 years, placing pressure on all forms of credit and interest rates.
“The Fed — which is independent — raised interest rates in response to global inflation caused by the pandemic, supply chain disruptions, and the war in Ukraine,” a White House spokesperson told the DCNF. “President Biden took action to lower inflation — from lowering prescription drug costs to strengthening supply chains to cracking down on price gouging by banning hidden junk fees — and we’ve seen inflation fall 65% from its peak.”
While inflation growth has decelerated 65% since its peak in June 2022, it has not fallen, with prices rising 17% overall since the beginning of Biden’s presidential term, while real wages have only increased 13.6%, according to CBS News. On average, households will have to spend an additional $11,434 per year to maintain the same standard of living due to inflation.
Experts blame a number of factors on the high inflation, but many economists point to Biden’s high-spending policies as his personal contribution to the increase. In March 2021, the president signed the American Rescue Plan, authorizing $1.9 trillion in new spending, and the Inflation Reduction Act in August 2022, which approved $750 billion in new spending.
“Regardless of the rate on reserves or the abundance of reserves, the nominal cost of borrowing has been increasing,” Norbert Michel, vice president and director of the Cato Institute’s Center for Monetary and Financial Alternatives, told the DCNF. “In the Treasury market, for example, inflation expectations are heightened, and the supply/demand conditions are such that rates are rising.”
ATL Fed: homeownership affordable in only 3 major metro areas (pop.>500k) nationwide; CA has multiple major metros where it takes more than 100% of after-tax median income to afford the median price home; most affordable metro in country takes over 1/3 of after-tax median income: pic.twitter.com/Ce5tRFxa3u
— E.J. Antoni, Ph.D. (@RealEJAntoni) November 26, 2023
Average interest rates for a 30-year mortgage are closely tied to the price of 10-year Treasuries, which are in turn heavily influenced by the pressure placed on interest rates by the Fed’s policies in response to inflation. The yield for a 10-year Treasury measured 4.39% on Monday, moderating from its peak at 4.91% on Oct. 18, according to the Federal Reserve Bank of St. Louis (FRED).
Trailing the yield on Treasuries, mortgage rates peaked at 7.79% on Oct. 26, the highest point since October 2000, and have similarly declined slightly to 7.29%, according to FRED.
“Since the raise in the federal funds rate is now affecting the 10-year Treasury, and that is tied to a large extent to where the 30-year mortgage is priced against, then you have mortgage rates rising really, really quickly,” Peter told the DCNF. “And then if you have higher mortgage rates, that means that you have to make higher, all else equal, monthly payments. And that’s what’s been taking the sting out of housing affordability.”
From December 2020 to August 2023, housing affordability was cut in half due to rising prices and higher mortgage rates. A median-income household could afford a 30-year mortgage on a $356,273 house in August, compared to December 2020, when that same family could afford a 30-year mortgage on a $737,392 house.
“So the Biden (and Trump) administration has to bear some responsibility for conditions regarding the price level, price level expectations, and the Treasury market,” Michel told the DCNF. “And, therefore, it has to take some responsibility for the cost to borrow for a home.”
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