U.S. homebuyers amid rate hikes

[Insights from the United States] American home buyers under crazy interest rate hikes: Mortgage soaring and paying hundreds of dollars more per month

　　China News Service, July 10 (Shen Jincheng Gong Hongyu) "Not only are housing prices ridiculously high, but mortgage interest rates have also risen to the point where they can't be repaid." In the past six months, in addition to prices and oil prices, the soaring loan interest rates have also made Americans Crazy.

　　The 30-year fixed mortgage rate in the U.S. rose from 3.1% to 5.3% in the past six months, peaking at 5.8% midway through, hitting a record high since 2009, the data showed.

　　This means that if an American now applies for a $500,000 loan from a bank, the monthly payment will be as high as $2,777, which is about $640 (about 4,200 yuan) more than at the end of last year.

U.S. 30-year fixed mortgage rates have trended over the year.

Data source: Freddie Mac, Bloomberg

Mortgage boom weighs on U.S. homebuyers

　　A Chinese who is planning to buy a house, Li (pseudonym) recently posted on social media platforms: "A few months ago, I asked if the 30-year fixed loan interest rate was still 3.25%, and now it has become 5.5%, which is incredible." What's more However, some U.S. lenders are charging more than 6 percent interest rates to home buyers.

　　Homebuyer Kent (pseudonym) is struggling to repay his mortgage early because mortgage rates are rising too fast.

He said he opted for a variable-rate home equity mortgage (HELOC) when he bought a home last year, and that rate has risen 0.36 per cent since Jan. 31 this year.

　　For Kent, the interest rate has not yet peaked, and the monthly interest in the long run is a lot of money; but if the repayment is made early, if the money is urgently needed later, it may be more difficult to apply for a loan from the bank.

No matter what you choose, there is a loss.

　　"After the Fed raised interest rates, the price cooling is not obvious, but the mortgage is still unaffordable." Kent reluctantly ridiculed.

　　As he described, as aggressive interest rate hikes and balance sheet reductions have been carried out one by one, the rise in U.S. mortgage lending rates has raised a lot of concerns.

The data showed that although the average interest rate on 30-year fixed mortgages fell to a new monthly low of 5.3% this week from 5.7% last week, this round of decline was built on the basis of interest rates soaring for several months. There is still a big gap from 3.22% at the beginning of the year.

　　Inflated mortgage rates have pushed up borrowing costs for homebuyers, and combined with historically high home prices, high home purchases are draining the wallets of American homebuyers.

　　The Wall Street Journal reported in April that a median American household would spend 41% of their income on a median-priced home loan.

"The job is gone, what kind of house do you want to buy?"

　　In addition to housing prices themselves, fears of a U.S. recession have also brought Americans' confidence to buy a home to a freezing point.

　　In a housing price discussion community, many American netizens commented that the local real estate market is indeed showing signs of cooling down.

　　David (pseudonym) from California said that even if the new house he wanted was built on his own vacant lot and was still cheaper by $100,000, he would not dare to buy it because the risk of an economic recession was too great.

"The Great Depression has already begun, and I can't keep my job status, so I can't buy a house."

　　Chinanews Finance noticed that in mid-to-late June, Google search trends showed that the search interest for the "House price index" in the United States reached 100, the highest value since the outbreak of the new crown epidemic in 2020.

At the same time, the search interest of another word in the United States reached 100 - "Recession".

Data map: New York, USA.

Photo by Zhongxin Finance and Economics Gong Hongyu

U.S. real estate '

　　As mortgages rose and homebuyer confidence fell, data from U.S. real estate agency Redfin showed that U.S. home sales fell 5 percent from a peak of 88,243 in May to 83,824.

The median asking price for a new listing fell to $403,000 from a peak of $409,000 in May.

　　Not only that, against the backdrop of sluggish housing sales and a cold mortgage loan business, U.S. real estate companies have laid off workers one after another.

For example, companies such as Compass and Redfin have previously announced plans to lay off hundreds of employees, with a total of thousands of employees affected.

　　According to a report released by Morgan Stanley, on the one hand, soaring interest rates have seriously eroded the purchasing power of consumers, while house prices have just hit a record high, and the high cost of purchasing houses has inhibited consumers' desire to buy houses.

　　On the other hand, the current inventory of existing homes remains at historically low levels, coupled with record highs of buyers locking in mortgage rates, and housing supply continues to be constrained.

　　In addition, in response to the risks that the economic recession may bring to the real estate market, Fortune magazine analyzed the housing price forecasts issued by several agencies and real estate agents, saying that the US real estate market has entered a period of "great deceleration".

　　For example, Capital Economics predicts that U.S. house prices will fall by 5% in the next year, which may be after the mortgage rate reaches 6%; Moody's Analysis predicts that in the event of a recession, national house prices will fall by 5%.

(Zhongxin Finance)