After the rise in rates in the US will there be a new real estate crisis?
The recent and future increases in interest rates announced by the Federal Reserve (Fed) have raised the specter of a possible real estate crisis in the United States that, according to experts, will not occur in the short term, since prices will continue to rise in the face of lack of existing housing.
Thus, the experts estimate, despite the fact that the rate hikes will cool down the real estate market of the world’s leading economy and it is foreseeable that the number of operations will fall in the coming months, prices will not fall precipitously, as happened in the 2007 crisis. -2008.
“With the new interest rates there will be fewer buyers and prices will soften, but they will not collapse,” Dowell Myers, professor of Politics, Planning and Demography at the University of Southern California.
The current situation, adds the expert, as well as all the sources consulted, “has nothing to do” with what was experienced in the subprime mortgage crisis of 2007-08, which led to a massive foreclosure of mortgages of those who did not they could afford them and a precipitous drop in prices.
After the rise in rates in the US will there be a new real estate crisis?
Photo: Tierra Mallorca via unsplash
On September 21, the Federal Reserve (Fed) announced a new rate hike of 0.75 points, the fifth since March, and with it the official interest rate moved to a range between 3 and 3 .25%, the highest level in the last 14 years.
In addition, the president of the Fed, Gerome Powell, confirmed that the upward trend will continue in the coming months until the objective of controlling inflation, which in August stood at 8.3%, is achieved.
These rises are having a real reflection on indicators such as mortgage rates. According to data from the research division of the Federal Reserve of San Luis, thirty-year fixed-rate mortgages are selling this week at 6.7% on average, a figure much higher than that at the beginning of the year, on the 3rd, 22%.
For their part, variable interest rates, which are the most sensitive to the Fed’s decisions and the ones that most affect the population (the monthly installment goes up or down depending on this data) have risen from 2.41% to the beginning of the year to the current 5.30%.
A new real estate crisis?
Faced with this situation, will Americans be able to cope with these increases, or is a new crisis looming in the real estate sector that will lead to lower prices?
In Myers’ opinion, although the market will suffer, it is unlikely that a strong crisis will come because after what was experienced fifteen years ago, “all kinds of protections were implemented in financial instruments, loans are more sustainable over time” and it continues there being ‘enough buyers who can afford to buy’.
For his part, the professor at the Business Institute of the University of Ohio, Itzhak Ben-David, explained that the increase in interest rates “will affect real estate prices” but above all it will cause “a drop in transactions”.
“It is very difficult to anticipate the impact that there will be. There may be a slight slowdown, but it is difficult to predict, and the situation can change from one moment to another” he acknowledged.
A spokesman for the Compass real estate company, one of the largest in the country, reminds of a recent talk that the chief economist of the National Association of Realtors (NAR), Lawrence Yun, gave to the company’s agents.
Worried about the potential drop in sales, Yun reassured them: Prospective home buyers who expect home prices to drop significantly before entering the market should think twice, as prices are neither going down nor going down. stop going up
Current NAR forecasts estimate that 2022 will close with a rise of 10% and 2023 with 1%. In August, the median home price rose 7% year over year to $389,500.
In Yun’s opinion, while there could be stronger adjustments in certain areas, there are many reasons why prices are unlikely to fall in the short term. The main one, there are not enough houses to satisfy the demand.
The key is in the millennials
Buying a house in the United States, a recent buyer tells, is an obstacle-jumping race in which not only speed matters.
A buyer must demonstrate economic strength, have as much money as possible for the entry, an impeccable credit history and be willing to enter a bid, because many times the final sale price exceeds the starting price.
“The current high prices are related to the high demand for housing,” says Ben-David, an opinion similar to that of Myers: “What is crazy is the housing shortage, there are too many people for too few houses.”
While in 2007 there was a surplus of houses, now what there is “a surplus of 30-year-olds who are potential buyers” and that has not been so in the years of the pandemic.
“The pandemic synchronized the behavior of thousands of millennials who jumped at the same time. When this happens, the impact on the real estate market is enormous”, he explains.
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All this in the midst of a crisis of lack of materials and shortage of labor, increased by the pandemic, the lack of land and also the bureaucracy, with citizens increasingly reluctant to suffer the inconvenience of the works.
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