Why is homeownership still out of reach for so many Americans? High mortgage rates, stuck above 6% for three years, are crushing affordability, and now Federal Reserve Chair Jerome Powell has dashed hopes for a direct fix.
According to Realtor.com, Powell has firmly ruled out Fed intervention in the secondary mortgage market to lower rates, despite growing calls for action.
Speaking at the National Association for Business Economics conference in Philadelphia on Tuesday, Powell addressed the Fed’s ongoing efforts to trim its massive balance sheet. This process, known as quantitative tightening, involves reducing over $6 trillion in securities held by the central bank.
Among these holdings are roughly $2 trillion in mortgage-backed securities (MBS), which are bundles of home loans packaged and sold to investors, often through entities like Fannie Mae and Freddie Mac. These securities play a key role in influencing mortgage rates through supply and demand dynamics.
During the COVID-19 pandemic, the Fed ramped up its MBS purchases as part of a stimulus strategy called quantitative easing. At its peak in 2022, the Fed’s MBS holdings reached about $2.7 trillion.
Since that peak, the central bank has been letting these securities mature and roll off its balance sheet without reinvestment. This runoff is seen as one factor keeping mortgage rates stubbornly high.
According to Freddie Mac, rates averaged 6.3% last week, nearly unchanged from a year ago. This stagnation has pushed housing affordability to multidecade lows, locking many potential buyers out of the market.
Yet, Powell made it clear that the Fed won’t step in directly to ease this burden. The central bank’s focus remains on broader monetary policy, not targeted mortgage market fixes.
Some bond market analysts have urged the Fed to reconsider its stance. They suggest reinvesting in new MBS as older ones mature, or even expanding holdings, to drive rates down.
Investment executives Marc Seidner and Pramol Dhawan from PIMCO estimate that reinvesting the $18 billion in MBS maturing monthly could cut rates by 20 to 30 basis points. A more aggressive tactic—selling older MBS and buying newer bundles—might slash rates by up to 50 basis points.
That 20 to 30 basis point drop, they argue, mirrors the impact of a full percentage point cut in the federal funds rate. It’s a tempting idea for a market desperate for relief.
These proposals have gained attention as a possible way to address mortgage rates that have lingered above 6% for three straight years. But Powell’s rejection signals that no such relief is coming from the Fed.
For everyday Americans, this means the dream of homeownership remains distant. Without intervention, high rates will likely persist, driven partly by the Fed’s ongoing MBS runoff. What can you do in this environment? Focus on building savings for a larger down payment to offset borrowing costs, and keep an eye on local markets for any softening in home prices.
While the Fed won’t meddle directly in mortgages, its broader policies still matter. Investors and homebuyers alike should watch how quantitative tightening unfolds and whether other rate pressures ease naturally.