The U.S. Treasury Department on Wednesday earmarked hundreds of millions of dollars for affordable housing as elevated mortgage rates and high property values have scared away potential homebuyers.
The government awarded more than four dozen organizations $321 million to help build affordable housing for low-income Americans through the Community Development Financial Institutions (CDFI) Fund’s Capital Magnet Fund.
The funding from the Capital Magnet Fund will also go toward the development of community facilities such as day care centers and health care clinics, the CDFI Fund said in a statement.
“[The] awards will provide Community Development Financial Institutions and nonprofit housing organizations with the critical resources they need to expand the availability of affordable housing for thousands of families and individuals in need across the country,” Marcia Sigal, acting CDFI Fund director, said in a statement.
Awardees must use the government money to raise more cash from the private sector to invest in affordable housing across the country. The CDFI Fund hopes the initial government money will help generate an additional $11 billion for projects.
“Today’s awards are projected to leverage more than $11.1 billion in private and public sector resources, all of which will be focused on addressing the shortfall in affordable housing that persists throughout our nation’s distressed and underserved communities,” Sigal added.
The Federal Reserve has been battling historic inflation levels since March 2022. And interest rates are now at a range of 5.25 to 5.5 percent, the highest in more than 20 years.
Inflation has reverberated throughout the consumer economy, especially in the housing market. Mortgage lending rates have soared to above 7 percent over the past month, the highest levels since the beginning of the 21st century, according to lender Freddie Mac.
“The 30-year fixed-rate mortgage has hit the highest level since the year 2000,” Sam Khater, Freddie Mac’s chief economist, said in a statement last week. “However, unlike the turn of the millennium, house prices today are rising alongside mortgage rates, primarily due to low inventory. These headwinds are causing both buyers and sellers to hold out for better circumstances.”
The Mortgage Bankers Association (MBA) said Wednesday that mortgage applications declined by 6 percent from a week ago, the biggest such drop since 1996.
“The purchase market slowed to the lowest level of activity since 1995, as the rapid rise in rates pushed an increasing number of potential homebuyers out of the market,” Joel Kan, MBA’s deputy chief economist, said in a statement.
The CDFI Fund, which was founded in 1994 and has awarded more than $7.7 billion to community development financial institutions, community development organizations, and financial institutions, said on Wednesday that a chunk of the funding will be invested in rural projects.
“The awardees are required to leverage their awards with other private and public investment by at least 10-to-1, guaranteeing that a minimum of $3.21 billion will be invested in eligible projects across the United States,” the CDFI Fund said in a statement.