Republican candidates in critical battleground races in the US midterm elections are seizing on soaring mortgage rates to attack Democrats on inflation, as they hope that a renewed focus on the economy will help them win control of Congress in November.
High petrol prices have continued to serve as the Republicans’ main weapon on the campaign trail despite an overall decline in recent months. But the Federal Reserve’s steep interest rate increases this year have given them additional ammunition by triggering a swift rise in mortgage rates to levels not seen since the 2008 housing-led financial crisis.
According to the most recent data, the average interest rate for a 30-year fixed-rate mortgage in the US has risen to about 6.7 per cent, doubling from about 3 per cent in January.
This has destabilised the housing market in many areas and raised concerns about affordability — two factors that are increasingly being cited by Republican politicians, who blame the administration of Joe Biden and congressional Democrats far more than the Fed.
“It’s reckless government policy that spent trillions of dollars that we did not have and then paid people not to go to work: that’s what fuelled the inflation. If they hadn’t done that, the Fed would not have had to react,” said Mark Robertson, a Republican who is challenging Dina Titus, the Democratic member of Congress from Nevada.
“I have wealthy, gated neighbourhoods, and then I have very modest homes in the east side of Las Vegas. And the impact is mostly on those modest and middle-class areas. Those are the people that are struggling the most . . . this is really hurting them,” Robertson added.
Other aspiring Republican members of Congress hoping to earn a seat on Capitol Hill and deliver a majority to the GOP in the November election have been piling on as monetary tightening is starting to bite.
In a tweet last week, Madison Gesiotto Gilbert, who is trying to win a House race in Ohio, attacked “one-party Democrat control of Washington” for causing “historic inflation” and triggering the doubling of mortgage rates.
In a tweet this week, Tom Barrett, who is trying to unseat Elissa Slotkin, a Michigan Democrat, posted a chart blasting what he called the “Slotkin/Biden effect”: a rise in the monthly mortgage payment needed to afford a median US home from $1,698 to $2,547.
In another congressional race in Nevada, Sam Peters, the Republican challenging incumbent Democrat Steven Horsford, said the contrast in the state of the housing market in his area is dramatic compared with a year ago.
“Houses were flying. You couldn’t even put them on the market. They were gone in a day . . . Fast-forward to now, there’s a bunch more inventory, but people are priced out because of the interest rates,” he said.
Peters added that relief was not in sight: “There’s a lot of work to do, to get our inflationary environment under control.”
The attention on housing and mortgages comes as Republicans are trying to refocus their midterm election campaigns on the economy in the final stretch of their races. In doing so, they hope to win over swing voters and keep their base energised, after Democrats regained some ground following the June Supreme Court ruling on abortion.
“There is a general discontent among Americans about the state of the economy. For a lot of millennials, even a lot of Gen X, certainly Gen Z, this is the first time that they are living in a world of high interest rates and living in a world of things being more expensive,” said Ben Koltun of Beacon Policy Research. “Gas prices are up, food is up, mortgage rates are up, housing costs are up. That affects everybody.”
With the central bank likely to continue raising interest rates in a bid to tame inflation — most officials forecast the federal funds rate to peak at 4.6 per cent in 2023 — economists warn mortgage rates are unlikely to retreat any time soon. This means first-time homebuyers will continue to be boxed out of the market even as property prices fall from their peaks.
Fed chair Jay Powell went so far last month as to warn that the once-booming housing market will probably “have to go through a correction”. The remark came during the press conference following the central bank’s decision to implement a third-straight 0.75 percentage point rates rise and lift the fed funds rate to a new target range of 3 per cent to 3.25 per cent.
“There was an underlying [affordability] problem going into this and now we have this spike in mortgage rates, which has priced millions of people out of the homebuying market. We’ve also seen very high growth in rents,” said Nancy Vanden Houten, lead US economist at Oxford Economics.
“It’s part of this bigger issue of everything costing more, especially the things that are essentials and consume greater shares of lower and middle-income households’ budgets,” she added.
Robert Dietz, chief economist at National Association of Home Builders, said the economic pain and the political fallout from the housing turmoil could extend well past the midterms.
“We’re not at the end of the Fed tightening, despite what markets are gambling on, and there are going to be higher interest rates,” he said.
“Given where housing is in terms of this particular business cycle, the importance of rent in terms of household budget challenges, and the importance of the home-ownership rate, I think we are more likely to see housing rise among those top-tier political issues in the 2024 presidential elections,” Dietz added.
Democrats are trying to fend off GOP attacks on housing and mortgages by pointing to the fact that Republicans have not announced any coherent plan of their own to bring down inflation, while they have passed legislation to bring down the cost of critical goods such as prescription drugs. The Biden administration has also announced steps to boost the supply of affordable housing, which should help ease expenses related to shelter.
The changes in the housing market may be even more politically salient in fast-growing battleground states such as Arizona, Georgia and Nevada, which are particularly prone to boom-and-bust cycles. A CNN poll released this week found Republicans had a slight edge over Democrats in three statewide races: for secretary of state, governor, and a pivotal Senate seat.
Housing prices have also skyrocketed in the metro areas of several states with competitive Senate races. Median sale prices have risen by 34-39 per cent in Phoenix, Las Vegas and Atlanta over the past two years, according to data from real estate brokerage Redfin. However these have started to cool recently as mortgage rates have soared and the inventory of homes has grown, following a prolonged post-recession decline in housing supply.
For Steve Baird, a veteran realtor in the Las Vegas area who is backing Robertson in his bid for Congress, the speed and scale of the disruption and change in the housing market this year has been both striking — and disturbing.
“It’s just anaemic right now and sellers have got to be very competitive and willing to take discounts,” he said. “It’s always hard, you know, coming off the market that we’ve been in.”