Recent actions and statements by the Federal Reserve, including raising the inflation forecast and uncertain communications, have led to an increase in mortgage rates in the U.S. Meanwhile, the housing market faces challenges from the 'lock-in effect,' where homeowners with low-rate mortgages are reluctant to sell, reducing supply and keeping prices high. In China, banks have raised mortgage rates for the first time in three years due to economic pressures.
The Federal Reserve's recent moves have significantly impacted mortgage rates and the housing market in the United States. Chairman Powell's remarks and the Fed's updated economic forecasts have led to higher mortgage rates, while the housing market grapples with limited supply due to the 'lock-in effect.' Concurrently, Chinese banks have raised mortgage rates for the first time in three years amid an ongoing property slump.
The Federal Reserve's recent actions have led to a noticeable increase in U.S. mortgage rates. Following the Fed's announcement and Chairman Jerome Powell's uncertain remarks, the market reacted negatively, causing the 10-year yield and mortgage rates to rise. Powell's comments during a press conference suggested that the labor market has not fully broken, which is a critical factor for the Fed's monetary policy decisions. The Fed raised its inflation forecast to 2.5% for 2025, indicating a potentially 'higher for longer' interest rate environment. This has resulted in elevated mortgage rates, as the market anticipates tighter financial conditions[1].
The U.S. housing market is currently facing significant challenges due to the 'lock-in effect.' Many homeowners are holding onto low-rate mortgages acquired during the pandemic, resulting in a reduced housing supply and increased prices. According to Jonah Coste from the Federal Housing Finance Agency, this effect has led to a 7% increase in home prices. The reluctance of homeowners to sell unless necessary has kept inventory low, exacerbating the competition among buyers. This situation has widened the gap between those who secured low-rate mortgages during the pandemic and those who did not, creating a new form of inequality in the housing market[2].
In China, banks have raised mortgage rates for the first time in three years, despite a persistent property slump. The average mortgage rate for first-time buyers in major cities increased slightly, reflecting the economic pressures faced by Chinese banks. These banks are dealing with narrowing margins and a slowdown in the economy, which has constrained the central bank's ability to lower interest rates further. Despite recent signs of improvement in property sales, the market remains challenging, and the rate increase is seen as a measure to create a buffer for potential rate cuts in the future[3].
The Federal Reserve's recent actions and statements have led to increased mortgage rates in the U.S., impacting the housing market significantly. The 'lock-in effect' continues to challenge the market by limiting supply and keeping prices high. Meanwhile, Chinese banks have raised mortgage rates for the first time in three years, reflecting ongoing economic pressures. These developments highlight the complex dynamics in the global housing markets and the influence of central banks' monetary policies.
"There are people that look at that 3% interest rate and aren’t giving it up unless life issues come up — estate sales, divorces, job relocations." - Jane Eurek
"It’s likely that regulators guided the banks to raise mortgage rates on new loans in a concerted move, so as to create enough buffer for further and bigger rate reductions next year." - Shen Meng