2023-08-30 06:33:26
HomeNewsReal estate credit: US interest rates exceed 7%
Posted on August 30, 2023
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Written by Thomas Saint-Antonin
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Borrowing rates have passed the 7% mark in the United States, a first since 2022. While the number of available homes is at half mast, only a drop in prices seems to be able to unlock a seized market for months. A finding that also applies to the French market, despite lower interest rates than their American counterparts.
Borrowing rates at their highest for 21 years
7,09 %. This is now the average rate for a 30 year mortgage in the United States according to the real estate refinancing group Freddie Mac. Be their highest level for over 21 years (April 2002). L’association of mortgage banks even table on a rate at 7,16 %. This is the direct consequence of the new increase in the key rates of the American Federal Reserve (Fed) last July, between 5.25% and 5.50%. In 2021, the Fed nevertheless lent between 0% and 0.25%, figures that today seem totally out of time. Now the Fed is even considering a further monetary tightening and may require a lower growth period to potential growth to avoid blocking future progress on inflation.
Admittedly, inflation has slowed since its peak, but it remains too high. We are ready to raise interest rates further if necessary and intend to maintain a tight monetary policy until we are certain that inflation is on a sustainable path towards our target..
Jerome Powell, Fed Chairman
Slumping demand and supply crisis
The purchase order of houses and apartments, she is lowest since 1995 in the American market. THE median price for a house reached 410 000 $ in June 2023, the second highest price ever recorded in the country. It is therefore impossible for many Americans who are already owners to move, as buyers who can finance this type of property are increasingly rare. A phenomenon which creates, in parallel with weak demand, a worrying supply crisis. This is particularly the reason why the stagnant pricesor go back up in many regions. Indeed, very few accommodations are available, which maintains prices. Home sales reached in June 2023 their lowest level of the year according to the figures ofNational Association of Realtors.
Beyond that, the prices displayed are also victims of the rise in bond yieldsat their highest level since 2007.
A drop in prices to revive the machine?
High prices, constantly rising interest rates… Apart from the level of borrowing rates (around 4% in France over 25 years), the dynamic is relatively similar in France and the United States. On the one hand, buyers are trapped between too high interest rates – banks are often reluctant to grant a loan, which hampers future buyers and especially first-time buyers in their research – and prices still too high compared to the current state of the market. On the other hand, owners and lessors do not seem not yet ready to lower the price enough selling their property to adapt to the situation. Real estate remains the dream of a lifetime for some of them, there is no question of “selling off”.
3,83 %
Let be the “very good” interest rate for a mortgage in the month ofAugust 2023 at the national level in France.
However, some owners should have no choice but to lower their ambitions in the next few months if they want to sell their property quickly enough. A hard decision to make, of course, but which might help unblock a real estate market that has been seized up for many months, whether in the United States or in France. A drop in real estate prices, combined with still high interest rates, might helpdo some rebalancing from which both parties would emerge winners in the short term. Regarding France, the Minister of the Economy Bruno the Mayor spoke on Monday July 28 and did not go into detail at the microphone of France Inter : « There will be no interest rate cuts in the coming months indicated the tenant of Bercy. Lowering prices therefore appears to be the most plausible solution for accessing home ownership in the coming months.
In summary
US interest rates exceeded 7% in August 2023; The increase in key rates by the Fed between 5.25% and 5.50% are particularly to blame; The US market is trapped between a generalized rise in real estate prices and an extremely reduced supply of goods; France seems to be following in the footsteps of its American neighbour; The solution for rebalancing the market? That owners begin to agree to lower the prices of their properties. Learn more regarding the housing crisis
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Thomas Saint-Antonin
Web editor, specialized in economics and wealth management.
I deal with all subjects revolving around wealth management. I strive to offer you the most far-sighted and incisive analysis possible on all of our digital media. Excellent reading to all.
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