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The average rate for a 30-year fixed-rate home loan jumped to 4.67%, mortgage-finance giant Freddie Mac said Thursday, marking the weekly figure’s highest reading since December 2018.

U.S. home prices soared to a new record in March while mortgage rates continued to rise rapidly, slowing home sales in what has been the hottest housing market in more than 15 years.

Above are two comments made in recent articles on the state of the US real estate market nationwide.

It’s a suitable time to take stock and discover what exactly is happening on the ground in this sector.

And show the benefits having knowledge of the 18.6-year Real Estate Cycle can provide you.

So, we can uncover the truth and identify what ‘really’ matters. And not just rely on emotional lead headlines.

Sound interesting?

Then let’s dive in.

What Freddie Mac said.

So, what exactly is Freddie Mac?

This is what it’s website says:

Freddie Mac was chartered by Congress in 1970 to support the U.S. housing finance system and to help ensure a reliable and affordable supply of mortgage funds across the country. Freddie Mac operates in the U.S. secondary mortgage market, buying loans that meet our standards from approved lenders.

Those lenders are then, in turn, able to provide more loans to qualified borrowers and keep capital flowing into the housing market.

The key point is that Freddie Mac has their fingers firmly on the pulse of the US mortgage market.

The Wall Street Journal reported in a recent article about them:

The average rate for a 30-year fixed-rate home loan jumped to 4.67%, mortgage-finance giant Freddie Mac said Thursday, marking the weekly figure’s highest reading since December 2018.

The increase extends the 2022 surge in mortgage rates. The rise is hardly shocking, given the record low rates reached in the pandemic period and concerns about high U.S. inflation readings. At the beginning of the year, the average rate on America’s most popular home loan was 3.22%.

Many countries around the world are striving to head off inflation concerns and increase cash rates.

This then feeds into mortgage rates.

Banks take full advantage of rate rises by passing these on to their customers in the form of increased lending rates for clients with variable interest rate loans.

The idea here is two-fold. One is an increased margin for banks, which pleases their shareholders.

Second, for central banks, it remains an effective tool to slow down the housing market, hopefully reducing demand and therefore the growth in home prices.

As of now, though, the high 30-year fixed rates we see today in the US are doing little to dampen demand.

Home prices are still surging, ultra-low inventories are adding fuel to that fire and demand keeps increasing right across the country.

So far, higher rates haven’t dented consumer interest…Mortgage credit availability, a measure of lenders’ willingness to issue home loans, rose in February to its highest level since last May.

If the above is correct, house prices and demand for credit is increasing despite high 30-year fixed interest rates and the impact rising inflation is having on the spending power of average US families.

Now, you may have a tough time understanding this conundrum. Perhaps you are thinking this?

“How is it possible for home prices, interest rates and inflation to all be rising at the same time? Surely this cannot continue?”

The only way to explain this conundrum.

It’s a good question alright.

When central banks start to raise rates, they do not expect the desired results to happen immediately.

The US is the biggest real estate market on earth. The US Fed don’t expect the results of their rate rises to percolate through this market for at least 6-12 months.

So, we can indeed have a situation where rates, home prices and inflation are all rising at once. Will such a situation continue though indefinitely? The answer is no.

Home prices in the US will cool off. Consider the recent hike of 50 basis points last week is the first of many expected such rises soon.

Volumes of home sales are now coming back down to pre-pandemic levels. Mortgage application levels have fallen 3% the last few weeks.

This is how the US central bankers remove the punch bowl from the grasp of the US mortgage market.

The US mortgage market does not like this.

So, what does the future hold then?

Are we going to see potential buyers give up and remove themselves from the market? Will this lack of demand see prices fall further from here?

I think I know what’s coming next. I have the 18.6-year Real Estate Cycle to guide me. Here is what I found.

A recent earnings call to shareholders from Nick Bailey, CEO of ReMax LLC, noted the following:

“The housing market remains very active right now. Buyers are rushing to beat anticipated mortgage rate hikes.”

A report last Tuesday from the National Association of Realtorsstated:

Nationwide, the median single-family existing-home sales price rose 15.7% in the first quarter from a year ago to $368,200.

While mortgage rates have risen at their fastest pace in 35 years…Median prices rose by at least 10% from a year earlier in 71% of the 185 metro areas, an acceleration from the fourth quarter.

Remember the mortgage lenders and the US Fed taking away their punch bowl?

They understand rising mortgage rates typically reduce lending, because fewer homeowners can save money through refinancing’s and higher rates can discourage potential buyers.

It’s what led me to comments by chief economist Mike Frantantoni of the Mortgage Bankers Association (bold emphasis is mine).

“Lenders want to find (mortgage) products to make sure they get enough volume and keep their doors open.

An increase in offerings for jumbo loans (those too big to qualify for a traditional government loan) and adjustable-rate mortgages have driven the expansion of mortgage credit. Lenders are increasingly easing minimum credit scores and allowing borrowers to take out larger loans relative to the value of the homes they are buying.”

No kidding!

The time for pure speculation in real estate has arrived in the US.

Straight from the horse’s mouth too (no offence Mike!).

Here is the future for the land market in the US, and everywhere else for that matter.

Credit everywhere for anyone.

Which means a window is still open for you to secure a loan to buy your dream home.

A few years from now, that same window will slam shut.

It’s not the time to be heavily leveraged when that occurs. That debt will financially destroy you.

Here is a straightforward way to avoid such a fate – a membership to the Boom Bust Bulletin (BBB).

It will teach you the history of the 18.6-year Real Estate Cycle, why it continues to repeat to this very day and the opportunities it presents for you to benefit.

No other subject has dominated the Property Sharemarket Economics inbox recently more than those from our members asking how much higher can home prices rise?

My recent BBB edition released last month provided answers to that exact question.

Shouldn’t you be getting the same advice?

Sign up now.

Best wishes,

Darren J Wilson
and your Property Sharemarket Economics Team

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This content is not personal or general advice. If you are in doubt as to how to apply or even should be applying the content in this document to your own personal situation, we recommend you seek professional financial advice. Feel free to forward this email to any other person whom you think should read it.