Housing market and mortgage rates… Mortgage rates, which have doubled since the beginning of the year, are also cooling the housing market and some businesses are seeing lower demand. The Fed is raising interest rates, which is directly reflected in mortgage rates. The Fed has also stopped MBS purchases, so MBS pricing and mortgage rates will be affected. In this rising interest rate environment, it may also have a slowing effect on the housing market. For reference, there are concerns about the emergence factors of the crisis in 2008.

 

The future of interest rates… The probability of a recession in the US next year seems stronger than before. Similar pessimism is evident in interest rate futures markets: Investors are betting that the Fed will reverse course next year, halt rate hikes sooner than officials expected, and begin cutting rates by mid-2023.

 

US 30-year average fixed mortgage rates... Source: Bloomberg

 

The real estate market… Housing companies may face significant working capital losses and cash flow difficulties due to deteriorating conditions in the mortgage market, including the dramatic collapse of the mortgage refinancing market and the weakening of the mortgage buying market. Mortgage rates rose earlier this month after the Fed hiked rates by three-quarters, the biggest increase since 1994.

 

Conclusion? In a tight market, it is possible that mortgage loans will decrease and house prices will decline rapidly as a result. Increasing interest rates will undoubtedly have a major impact on such an effect. Rising mortgage rates and the decline in home purchase demand seem to have a cooling effect across the housing market. Rising concerns about the economic slowdown and rising recession risks keeping Treasury yields low could provide a partial drop in mortgage rates, but mortgage rates are significantly higher than last year, so home purchase and refinancing applications remain low.

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