this spring, The Federal Reserve has brushed off its previous inflation-fighting strategyCentral banks put upward pressure on long-term interest rates, including mortgage rates, through signals that short-term rates will rise soon. These mortgage rate spikes will depress both home sales and home construction. This reduces demand for commodities (such as wood and concrete) and durable goods (such as countertops and refrigerators). These contractions then spread throughout the economy, theoretically helping to keep inflation under control.
of Housing modification phaseOf course it has already started.
Across the country, home shoppers are pausing their home search. Year-on-year, new home sale When Sale of existing homes It is now down 29.6% and 20.2%.When Detached house construction starts When Home loan purchase application They are down 18.5% and 23% respectively. Simply put, housing activity is rapidly shrinking.
no matter what you call it housing correction, housing recessionAlso housing recession— it’s not over yet. Just look at mortgage interest rates. Towards the year, the average 30-year fixed mortgage rate he stayed at 3.1%. That was long ago. on thursday rose to 6.23%— Second highest mortgage rates in 2022.
If a borrower takes out a $500,000 mortgage at an interest rate of 3.2%, their monthly payments will be $2,162. If the interest rate is 6.23% for him, the monthly payments will be $3,072 for him on a 30-year loan. These mortgage rate increases bubbled house prices jumped 43% during a pandemic—just making new monthly payments out of reach for many potential buyers.
As long as both mortgage rates and home prices remain this high, industry insiders say the housing market will continue to languish.
Earlier this week, Goldman Sachs announces revised forecastsInvestment banks now forecast that residential GDP will fall by 8.9% in 2022 and another 9.2% in 2023. This marks the first housing market downturn since the global financial crisis. culprit? Affordability crisis triggered by soaring mortgage rates (see chart below).
Bad news for buyers? It could be a while before interest rates ease significantly.
“We expect fixed rates to average 5.5% by the end of the year,” said Mark Zandy, chief economist at Moody’s Analytics. luck.
As the U.S. labor market begins to weaken, financial markets should start easing mortgage rates, Zandi says. Theoretically, the combination of a weaker labor market and lower inflation should allow the Fed to ease its inflation struggle. But wages could rise further if the overheated labor market persists.
“Of course, if the job market remains resilient, the Fed will have to tighten more aggressively than the market is expecting, and mortgage rates will have to drop. [would go] Higher and ultimate damage to the housing market [would be] Bigger,” Zandy points out.