Rough weather in US real estate

The 30-year mortgage rate in the US is now 7.2% – its highest level in over 20 years. This surge in real estate borrowing rates is a direct consequence of the strong interest rate hikes made by the US central bank. It is of course resulting in a collapse in demand for loans, which recently hit its lowest level since 2015. Year-on-year, demand has fallen by close to 40%, in what was its sharpest drop since the 2008 crisis.

If we look at the latest figures on the US property market, there are many parallels with the global financial crisis, which started with an economic and real estate crisis. At the beginning of last week, the National Association of Realtors’ confidence index hit its lowest level (excluding during the COVID pandemic) since 2012, with a year-on-year contraction that was stronger than prior to the 2008 crisis. The proportion of buildings authorised but not started reached its highest level since the end of 2008, while the fall in sales of existing homes by close to 25% year-on-year is also worthy of mention. Excluding the lockdown period, we have to go back as far as the 2008 crisis to find such a phenomenon.

This brutal and rapid collapse in demand for real estate is reflected in a fall in transaction prices. For example, the Freddie Mac House Price Index has fallen over the last three months, which has not been seen since 2011, when the US real estate market was still dealing with the excesses of the real estate bubble. After the surge in prices post-COVID on the back of massive fiscal support, the appetite for larger properties and the flexibility offered by homeworking, the scissor effect between over-inflated prices and a serious deterioration in financing terms is proving brutal.

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