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Are Rising Mortgage Rates Cooling The US Housing Markets?

The last months of 2023 witnessed a sharp rise in mortgage rates, reaching 7.49% in November 2023. The flames in the US mortgage rates have cooled down the housing market in the US. Let's learn more about the burning trends.



Rising Mortgage Rates


The last report by the Commerce Department states a quick decline in the sales statistics in the US. All thanks to the high mortgage rates that have left builders anticipating slower buyer traffic. You might be astonished to find out that the current mortgage rates in the US are highest in the past two decades. 


Mortgage rates are the interest rates that borrowers pay on loans withdrawn to purchase homes. Expressed as a percentage, the mortgage rates are determined by a number of factors. The major factors that decide the mortgage rates include the borrower's creditworthiness, the nation's economic conditions, and the loan amount. Mortgage rates can be fixed and variable. Both are advantageous in one aspect and have certain limitations as well. The primary advantage of the mortgage rate is that it makes it easier for borrowers to budget their monthly payments. Though, in the US, most of the loans are fixed-rate and stay the same throughout the life cycle of the loan.  


How have mortgage rates fluctuated in past years?

The graph of the mortgage rates has witnessed quite a variable trend in the past few years. While in January 2021, the rate was pretty low at 2.65%, it turned as high as 7.49% in November 2023, which is almost three times the beginning. 


Cause of inflation in the US mortgage rates:

Here are the primary factors that have elevated the US mortgage rates in house markets.


Tightening of the Federal Reserve's Monetary Policy:

The major factor that resulted in the inflation of US mortgage rates was the tightening of the Federal Reserve's monetary policy. The rising interest rates of the Federal Reserve have made it expensive for the other banks to borrow money. Thus, to balance the differences, banks have led to higher mortgage rates. 


Global Economic Uncertainty:

Due to a number of factors, such as COVID-19, the Russia-Ukraine conflicts, and the Hamas-Israel war, the global supply chain has been disrupted. Further, the economic conditions worldwide have shrunk, making the market and investors more risk-averse. The phenomenon has significantly contributed to higher mortgage rates.


How mortgage rates drive the growth of the US housing market

The US housing market is a complex seller-buyer place. Single-family homes, condos, and townhouses are some of the major properties that influence the housing market in the US. What makes this market more complex is constant variations in supply, demand, and interest rates. 


High mortgage rates significantly impact the growth of the US housing market, making it difficult for buyers to find and afford homes. After the pandemic, house prices have grown significantly, and they are still above the pre-pandemic levels. The recent hike in mortgage rates has slowed down the US housing markets. House demand is rapidly declining in the states. As the demand has slowed down, the home prices have come down. 


Impact of rising mortgage rates on investors and homebuyers

As the mortgage rates increase, the cost of borrowing also rises in the market, which may deter some buyers and potentially reduce the overall demands:

  • The high borrowing costs have made it expensive for potential homebuyers to finance their purchases.

  • Rising mortgage rates can influence the existing refinancing activity as homeowners may not find it worth refinancing at higher mortgage rates.

  • The increased cost of borrowing affects the affordability factors for individuals seeking homeownership.

  • In simple words, homeownership has become less accessible for many aspiring buyers. 

  • More likely, the higher mortgage rates can deter buyers. This will decline the overall demand for residential properties.

  • Additionally, the recent trends in the US housing markets are subjected to factors such as job market stability, inflation, and overall economic sentiment, which influence the impact of rising mortgage rates on the real estate landscape. 


How to make the most of the current real estate situation?

In the current US housing market scenario, our experts advise the following keynotes to the investors and potential buyers:

  • Recognize the cooling effect on the housing market due to higher mortgage rates. Acknowledge that this may lead to a decline in overall demand and impact home prices.

  • With the cost of borrowing on the rise, assess the affordability factor for potential homebuyers. Understand that higher mortgage rates may limit their ability to finance home purchases.

  • Consider alternative real estate investment strategies. For example, investing in rental properties could be a viable option, as it may be less affected by short-term fluctuations in the housing market.

  • Look beyond short-term fluctuations and consider long-term trends in the housing market. Evaluate factors like job market stability, inflation, and economic sentiment to make informed decisions.

  • Diversification is key to managing risks. Consider spreading your investments across different types of properties or geographic locations to mitigate the impact of localized market changes.



HK Ascensions Inc: Your trusted US housing real estate partner

Are you looking to establish or invest in a property in the US market? As the situation in the US housing market is still evolving, it is crucial to stay informed about market dynamics. At HK Ascensions Inc., our experts always stay updated about the recent market trends and utilize most of this knowledge to make our customers' investments worthy and profitable.


A Way Forward

In conclusion, the relationship between the US mortgage rates and the housing market is complex. It is more like a multifaceted dance, with each move shaping the landscape in unique ways. Navigating these changes requires a keen understanding of affordability dynamics, buyer behavior, and the broader economic context. Monitoring these trends can provide valuable insights for both prospective homebuyers and those involved in the real estate industry. Additionally, HK Ascensions Inc. has always got your back to offer you real-time updates on the US housing markets and the best-ever real estate advice.

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