Four separate reports released in the past two days have revealed the state of the US housing market – and they do not paint a pretty picture.
According to the Federal Home Loan Mortgage Corporation (Freddie Mac), the 30-year fixed rate mortgage breached seven per cent (7.08 per cent) for the first time since April 2002, which it said will “lead to greater stagnation in the housing market”.
The report continued: “As inflation endures, consumers are seeing higher costs at every turn, causing further declines in consumer confidence this month. In fact, many potential homebuyers are choosing to wait and see where the housing market will end up, pushing demand and home prices further downward.”
Higher rates recorded
The Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Index noted that mortgage rates increased for the tenth consecutive week and set the rate even higher than Freddie Mac, stating that the 30-year fixed rate had reached 7.16 per cent (from 6.94 per cent), the highest rate since 2001. And this has had a knock-on effect on applications.
Joel Kan, MBA’s vice president and deputy chief economist said: “The ongoing trend of rising mortgage rates continues to depress mortgage application activity, which remained at its slowest pace since 1997.”
He also gave a downbeat assessment of future prospects.
He said: “MBA’s forecast expects both economic and housing market weakness in 2023 to drive a three per cent decline in purchase originations, while refinance volume is anticipated to decline by 24 per cent.”
Edgar Rayo, chief economist at Finanze agreed that anticipated rate hikes would only exacerbate the situation across the Atlantic
He said: “The US mortgage market is bracing for further hikes as the Fed will meet next month and will likely raise borrowing rates once again. Like in the UK, the rising cost of borrowing will continue to affect affordability and impact house prices.”
US house prices slow, sales slump
Meanwhile, S&P CoreLogic Case-Shiller Indices, which measures house prices in the US, revealed that, for August 2022, home price gains decelerated across country.
The report stated that there had been an annual gain of 13 per cent in August, down from 15.6 per cent in the previous month. The 20-City Composite posted a 13.1 per cent year-on-year gain, down from 16 per cent in the previous month.
As for sales, the US Census Bureau and the US Department of Housing and Urban Development jointly reported that sales of new single‐family houses in September 2022 fell to 603,000, down 10.9 percent month on month and 17.6 per cent year on year.
No US sub-prime repeat
However, despite the ructions in the markets, experts are not forecasting a repeat of the chaos in the US sub-prime market that was seen during the financial crisis in 2008.
Samuel Mather-Holgate, Independent Financial Adviser at Mather and Murray Financial, said: “Mortgage rates have skyrocketed in the US, however, unlike 2008 when their sub-prime market imploded, homeowners tend to be able to afford the new rates, however uncomfortable it is getting.
“This means there are few foreclosures, so few properties are on the market. You might see a similarity here, as the Financial Conduct Authority introduced affordability stress tests in wake of the same crisis in the UK.”
