Home Economic U.S. Mortgage Rates Soar Nearly 8 Percent, So Why Are Home Prices Still at Record Highs?

U.S. Mortgage Rates Soar Nearly 8 Percent, So Why Are Home Prices Still at Record Highs?

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Recently, the United States property market, a “strange phenomenon”. On the one hand, the U.S. 30-year mortgage rate level soared, approaching 8%, but on the other hand, U.S. home prices hit a record high in July this year.

Generally speaking, mortgage rates rise, the cost of home buyers to improve, will inhibit the demand for housing and pull down house prices. Why the U.S. home prices have risen instead of falling so far this year?

U.S. Home Prices Hit Record High

Recently released S&P Case-Shiller National Home Price Index shows that in July 2023, the U.S. National Home Price Composite Index hit a record high, and the index rose 0.6% in the month, compared with the year-on-year increase of 1%.

Craig Lazzara, Managing Director of S&P Dow Jones Indices, said U.S. home prices fell after peaking in June 2022, and in the seven months since then, U.S. home prices have declined 5.0%. The turning point occurred in January of this year, when U.S. home prices rose again. As of July this year, the previous decline has been cancelled out and the house price index is at an all-time high.

It is worth noting that the U.S. is currently in the midst of an interest rate hiking cycle that has lasted more than a year. Since the rate hike was initiated in March 2022, the Federal Reserve has raised interest rates 11 times for a cumulative total of 525 basis points.

Home mortgage rates have moved higher in tandem. The Mortgage Bankers Association (MBA) recently released data showing that as of the week of 6 October, the interest rate on 30-year fixed-rate mortgage contracts had risen to 7.67%.

What does a mortgage rate of nearly 7.7 per cent mean? With a loan amount of 3 million yuan (RMB, the same below), 30-year equal principal and interest, home buyers repay about 21,000 yuan per month. And previously a large number of U.S. home buyers mortgage interest rates of less than 3%. With 3%, the same loan amount, monthly repayment is only about 12,000 yuan.

Why are U.S. home prices moving erratically?

The answer may lie in supply.

Headquartered in Kuala Lumpur, the global property technology company living outside the IQI (Juwai IQI) Group co-founder and Group CEO Kashif Ansari (Kashif Ansari) said in an interview with China News Agency, the U.S. property market is now in the demand for home ownership and supply of housing at the same time inhibited by the “price but no market “State, buy a house not more but sell a house less, this state is likely to continue to next year.

Data from Redfin, a US real estate brokerage firm, also reflects this trend of “rising prices and falling volume”. data released by Redfin shows that in September 2023, US home prices rose by 2.2 per cent compared to the same period last year, but the number of homes sold fell by 17.6 per cent year-on-year.

Glenn Kelman, Redfin’s chief executive officer, recently said that rising interest rates are causing many US consumers to decide to pull out at the start of the home buying season. Between 20% and 25% of real estate transactions have been cancelled in the past four to five weeks.

What is the true state of the US property market?

Several U.S. real estate brokers said in an interview with CNA that they are not optimistic about property transactions under high interest rates.

Boston based real estate technology company US GeoHome (GeoHome US) co-founder Yang Xiaowen said that most people are “non-essential not to sell the house”. The high interest rates in the US mean that most homeowners have mortgages on hand at rates below the current rate. Market transactions are generally about two-thirds of the pre-epidemic average.

Yang revealed that the number of clients received by US brokers has been shrinking rapidly recently. “Some of the star brokers we’ve worked with for a long time have spent a lot of time on holiday this year.” Moreover, many friends around us have postponed their home exchange plans.

The situation is similar in the US West Coast city of Seattle. Becco Zou, a broker at the Seattle Kirkland branch of real estate brokerage Compass, said high interest rates have had a big impact on real estate turnover in Seattle. American families basically every 10 years will change the house, but interest rates rose from 2.8 per cent to nearly 8 per cent now, want to change the customer can only temporarily immobilised, want to buy a house many of the crowd is also in a wait-and-see situation.

The cost of buying a home has also risen dramatically. I recently bought a home for a client,” said Pearl Wu, a Los Angeles broker with real estate brokerage eXp Realty. He’s been looking at buying a home since 2021 and has been looking for two years, during which time mortgage rates have also gone from about 2 per cent to 7 per cent, and the average home price in the greater Los Angeles area has gone up by about $100,000 in two years. The house he was looking at two years ago is now unaffordable for the same purchase price.”

Will U.S. home prices continue to rise?

Kashif Ansari says the market doesn’t see high home prices falling in the coming year. High mortgage rates are also discouraging homeowners from selling their homes, most of whom are signing up for regular low mortgage rates from previous years. If they want to improve their living conditions, they can only hold on to the low interest rates, the second choice is to remodel and renovate their existing homes. Figures also show that builders have no intention of constructing many buildings in the face of a shortage of workers, rising material costs, and a cooling property market.

Meng Xiaosu, former chairman of China Housing Group and chairman of Huili Fund, told CNA that the U.S. property market is roughly in an 18-year cycle, and that the U.S. property market is currently at the end of a boom cycle, which is why it seems to be rising so quickly recently. However, he believes that this boom cycle may come to an end in the next one or two years, when U.S. property prices may see a round of sharp declines.

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