A US recession might be right at the door, as rising mortgage rates hit the real estate market increasing treasury yields dangerously close to the cap rate.
Two earlier Google search trends revealed the sentiment market participants feel in the last month, with one related to the recession and the other on selling their house. Now, a third worrying Google trend emerged; the search volume for ‘real estate market crash’ skyrocketed by 284% in the US as of September 2022, the highest in Google Trends history.
This comes in the light of ever-increasing mortgage rates and a price drop in US housing for the first time in a decade.
Tony Mariotti, CEO of RubyHome, a Malibu real estate firm, claims that if the current trends in housing persist, homebuyers will end up with smaller homes.
“Mortgage rates continue to rise beyond the Federal Reserve’s reported 6.29% on September 22. However, we’ve seen this accelerate; mortgage approvals on 30-year fixed loans this week reached 7% for some of our buyers. Going forward, if this trend holds, buyers will afford smaller homes unless they are cash buyers.”
He also added:
“Sellers who’ve been holding out for pandemic-inflated prices are going to have to eventually lower their prices. This is just a psychological shift taking place – one that takes a few months to play out.”
Homeowners that have potentially used low rates in 2020 and 2021 to refinance or take out a mortgage on their homes have little incentive to sell their homes since they get to lock in the low mortgage rates while new ones keep on rising.
Further rate hikes could weigh on home sales in the near term; on the other hand, existing-home sales could stabilize if the mortgages stabilize, according to Lawrance Yun, the chief economist at the National Association of Realtors.
It would seem that new home buyers are now at the mercy of the Federal Reserve (Fed) and the mortgage rates.
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