On the real estate front, while selling prices have soared in the United States, borrowing rates are taking off, and it's not over, judges our columnist Christopher Dembik, director at Saxo Bank. Access to housing is increasingly difficult… For more and more Americans, owning real estate is now a distant dream, denounces the expert.
In today's Macro Chartmania column, we look at the US 30-year mortgage rate. In January, it stood at 3.1%. It is now above 4%. This is just the beginning. Many American households are no longer able to buy a property with a borrowing rate of 4%. This aggravates the major problem of access to housing in the United States. Real estate prices continue to soar (+15% on an annual basis, for an average price of 357,000 dollars), while sales are falling and the stock of unsold homes is increasing.
Buyers are trapped. The persistent rise in prices and the rise in mortgage rates represent a double difficulty. Many buyers who had obtained a borrowing rate of 3% can no longer finance the purchase of their property with a rate of 4%.
Exactly one year ago, the average 30-year mortgage rate was around 3%. It now stands at 4.5%. This is the highest mortgage rate since December 2018. The average 15-year fixed mortgage rate, particularly popular with households refinancing their homes, also rose. It hovers around 3.4%, whereas it stood at 3.09% just a week ago.
This is just the beginning. Mortgage rates are closely correlated to the Federal Reserve's benchmark short-term interest rate. We believe that the Federal Reserve will raise the rate by 400 basis points (4 percentage points) during this cycle in order to fight inflation. If so, it would be a tightening cycle similar to those that have taken place since 1985.
The 30-year mortgage rate could thus exceed 5%. It would be the first time since 2010. The social consequences would be considerable (buyers would desert the market, breach the social contract, etc.). For more and more Americans, owning real estate is now a distant dream.
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