There are signs of bubbles in the U.S. housing market, which has been inflated by liquidity concentrated during the COVID-19 pandemic. In particular, while applications for U.S. mortgage loans have fallen to the lowest level in 22 years, a “transaction cliff” phenomenon is also being detected. It is analyzed that the cause is rising interest rates and concerns over an economic recession. The Wall Street Journal (WSJ) said, “It is a sign that the housing market, which has been hot for two years, is recovering to normal.”
According to a report that WSJ cited data from the Mortgage Bankers Association (MBA) on the 8th (local time), the number of mortgage applications fell 6.5% from the previous week over the week until the 3rd. New applications for mortgage loans for home purchases fell 7% and refinancing applications for new loans fell 6% as they expired. As a result, applications for mortgage loans fell for four consecutive weeks, the lowest level in 22 years. Concerns over a rise in mortgage rates and an economic recession caused by the Federal Reserve’s key rate hike are cited as the reasons for the decline in loans. WSJ analyzed, “In addition to the high interest rate, the economic recession is now also affecting purchase demand.”
In fact, according to Freddie Mac, a U.S. housing finance company, the 30-year mortgage rate hit 5.09% last week. The figure is up about 2 percentage points from 3.22 percent at the beginning of the year. There is also a trading cliff phenomenon as more and more people hesitate to buy homes for fear of falling asset value due to the economic recession. According to the National Association of Real Estate Agents (NAR), sales of existing homes in the U.S. fell 2.4 percent in April from a month earlier, falling for the third consecutive month. The annual converted housing transaction volume was 5.61 million, the lowest since June 2020, the beginning of the COVID-19 crisis.
Meanwhile, attention is being paid to the “Rule of 10” introduced by the U.S. economic media CNBC the previous day. The law of 10 refers to the tendency of economic slowdown or economic recession if the interest rate on mortgage loans is 10 or higher, adding gasoline prices. Currently, interest rates on mortgage loans have surpassed 5%, and the average U.S. gasoline price has reached $4.955 per gallon (3.8 liters) on the same day, compiled by the American Automobile Association (AAA). CNBC explained, “The recession came when the sum of mortgage rates and gasoline prices exceeded 10 in 2001 and 2008.”