The latest figures from the Federal Home Loan Mortgage Corporation, otherwise known as Freddie Mac, published last week, showed that a 30-year fixed rate mortgage had hit a 20-year high, averaging 6.92 per cent and 15-year fixes had risen to 5.9 per cent, up from 2.3 per cent a year ago.
Meanwhile, despite a slight drop being recorded at the end of last week, inflation remains stubbornly high at 8.2 per cent and there is likely to be another hike in the interest rate when the Federal Reserve meet at the beginning of November. Commentators expect the increase to be up to 0.75 per cent and makes it the fourth such percentage increase in a row.
US mortgage rates are likely to continue of their current upward trajectory, according to Haig Bathgate, head of investments at wealth management firm Atomos Wealth.
He said: “For the time being, rates are likely to keep rising. But this is a chicken and egg type scenario.
“The more rates rise, the less affordability there is on the behalf of the consumer – property prices work on marginal supply/demand, so a small number of transactions from distressed sellers can have a disproportionate impact on prices.
“Ultimately, house prices are a big contributor to confidence, so this could ultimately drive a recession if it keeps going like this.”
US and UK moving in lock-step
The UK is obviously facing the same situation with rising inflation and mortgage rates despite the reversal of the mini Budget, announced by new Chancellor Jeremy Hunt yesterday. Bathgate feels that there will be little divergence between the two countries.
He said: “I think the UK and the US will move in lock-step, this proved to be the case in 2008 (Northern Rock through to Lehman) and the dynamics of both economies are very similar.
“They are both consumption-led, service-based economies. Energy prices are having a bigger and or negative impact on consumption in the UK given the proximity to the conflict in Ukraine but both economies tend to move in tandem.”
When asked how he viewed the future situation for the market in the UK, Bathgate is measured in his response.
He said: “I think it gets worse in the short term but that will prompt further intervention unless things stabilise naturally – which they might do now that the extreme budget measures have been removed.”
