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Alert in the US mortgage market: the latest fall sends another notice to the Fed

Date: February 26, 2024 Time: 19:13:03

The real estate market always tends to be erected as an important meter of economic activity. When the red lights come on in the sector, it usually generates some uncertainty in the main players in the economy. Now, with the United States showing contraction in this area, it seems that certain questions remain.

A sample of this situation can be clearly found in the evolution of mortgage loan applications. The price of the 30-year United States Treasury bond has once again exceeded the levels of 3.9%. A level that it had not reached since the end of February of this year and that illustrates the pressure on the mortgage market. However, the financing for the purchase of housing at that term is much higher: the 30-year mortgage rate stands at 6.57%.

Those levels above 6% clearly represent the fundamental factor by which the demand for mortgages continues to collapse. “Mortgage rates even rose last week as Treasury yields remained flat, with the spread between the two rates widening as much as 310 basis points (…) Mortgage application activity slowed as most of the ia Survey mortgage rates rose, with the 30-year fixed rate jumping nine basis points to its highest level in two months,” according to Joel Kan, vice president and deputy chief economist at the MBA, and reported by various media outlets in the United States.

The MBA association explains that purchase requests fell 5% – with the slowest pace in the last month – in response to the fact that buyers have a lot of uncertainty with the volatility also observed in rates, although because the supply of homes is scarce in many regions of the United States.

As a context, the reality is that the prices that are still high in areas such as Florida, New York or Texas, together with those rates that have not been seen since 2006/2007, cause individuals and companies to think twice before to launch into the direct purchase of a property. All in all, it seems that the peak of October last year is still some way off and that the noise now continues to focus on the Fed’s expectations.

In his last monetary policy meeting in early May, Jerome Powell, Chairman of the General Reserve, opened the door to pausing the rise in interest rates, since the job of tightening, or part of it, would already be done. Not in vain the fight against inflation, with an underlying rate at levels above 5%, and, therefore, from the monetary institution they have always had an impact on data dependence and on seeing the effects of the more accelerated increase in the price of money since the 80s.

For now, markets continue to price in, with a probability in federal funds futures markets of over 50%, the first interest rate cut in September, right after the summer. And if those forecasts were to come true, then the mortgage market could see further relief.

“Mortgage rates should fall more when the cut in interest rates is clearer, but in the meantime the tension will continue to be reflected in the markets: starting from fixed income as a great reference,” the team of analysts points out in this regard. of JP Morgan’s fixed rent in a recent report.

Increased construction of single-family homes

The B side of this context is found in the latest numbers of construction of single-family homes in the North American country. In this case, in the month of April, it rose despite the fact that the data for the previous month was revised downward. This would suggest that the decline in US real estate is not nearly over yet, despite the fact that there are some areas where there is already greater stability.

Single-family home starts, which make up the bulk of the US housing stock, rose 1.6% to 846,000 units last month. March data is revised downward. Finally, the revised data was at 833,000 units. A mechanical revision that was also demonstrated with the employment data for the month of April and the revisions that were made with respect to March and February, in the latter case in 78,000 fewer payrolls.

As reported by the Department of Commerce on Wednesday, and according to different news agencies such as Reuters, it was concentrated in the West, while the rest of the three regions registered large falls. In this sense, it would be possible that the shortage of some materials has made it difficult for builders to work, who have seen how delays in the construction of houses have increased and completions have decreased.

* This website provides news content gathered from various internet sources. It is crucial to understand that we are not responsible for the accuracy, completeness, or reliability of the information presented Read More

Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.
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