Will the US housing market collapse

On October 18 local time, US treasury bond bonds were again sold off on a large scale. The benchmark 10-year US Treasury yield is approaching 5%, and the 10-year US Treasury yield has surged 11.8 basis points to 4.845%, setting its highest closing level since July 25, 2007.

In the 30-year US bond market, the closing interest rate was 4.927%, second only to the highest yield since 2007, which was 4.973% on October 6th. The two-year US bond yield rose 14 basis points to 5.24%, setting a new 17 year high since 2006.

This extremely high interest rate level is highly likely to further have a huge impact on the trading volume of the US real estate market, and industry insiders analyze that the US real estate market may even collapse as a result.

For example, if a buyer buys a house worth $1 million with a 20% down payment, their monthly mortgage expenses would be around $2500 more than two years ago. For Americans who have not yet fully developed a savings habit, this is a significant expense.

From the current situation, perhaps only those with high incomes or holding a large amount of cash can afford to buy a house. According to Doug Duncan, Chief Economist and Senior Vice President of Fannie Mae, the environment of rising mortgage rates will continue to suppress housing activity and further complicate housing affordability, even lasting until 2024.

And ordinary homebuyers want to buy but cannot afford it, and the rate of mortgage interest rates rising has turned away most people who have a desire to buy a house; The problem of homeowners sitting on low interest rate mortgages from a few years ago without seeing the incentive to sell their homes, and buyers and sellers continuing to move in the opposite direction, will be a problem that has been troubling American coin holders and homeowners for a considerable period of time.

According to data from the National Association of Real Estate Agents, Americans' affordability to buy a house fell to its lowest level since 1985 this summer. Some economists even predict that the sales of second-hand houses will decline to at least the lowest level since 2011 in 2023. In 2011, with a relatively small population in the United States, the real estate market slowly struggled to recover from the unprecedented subprime crisis.

According to the analysis of insiders, this year's depressed transaction situation in the US real estate market is similar to the previous slowdown after the bursting of the real estate foam in the first decade of this century, but there are many differences. At that time, the US economy was in a deep recession, with millions of homeowners losing their homes due to foreclosure. This time, due to the Federal Reserve's interest rate hike policy, borrowing costs continue to rise, housing prices have repeatedly reached new highs, and the number of houses available for sale is very limited.

If the crisis becomes a reality, it is highly likely that the 48000 billion yuan of real estate held by American households will turn from assets to negative assets, posing a huge dilemma for the American people and businesses. They are all hoping that the Federal Reserve can cut interest rates as soon as possible and restart the super money printing machine. From the current effectiveness of interest rate hikes, the effectiveness of high interest rates in suppressing inflation is not ideal, but it has brought enormous pressure to the public and businesses.

For ordinary Americans, financial activities such as buying houses and taking out loans have become more difficult, and many cannot afford high interest expenses.

For overseas investment buyers, in the past few years, due to the good economic development of the United States, the real estate industry in the United States has also attracted a large number of overseas buyers. However, after the outbreak of the epidemic, the purchase volume of overseas buyers has gradually decreased, especially after the Federal Reserve tightened monetary policy last year, the decreasing trend is more obvious.

In a data released in August this year, the American Association of Real Estate Brokers pointed out that since the Federal Reserve raised interest rates in March 2022, the number of home purchases by overseas buyers has decreased by 14% within one year. It is obvious that the crisis in US real estate is approaching, and overseas buyers are not willing to take over at this time.

So, from the current situation, the real estate market in the United States is in a state of internal and external concern. There seems to be no other effective way except to restart the super banknote printing machine.

But the key to the problem is that starting the super banknote printing machine will face more risks and challenges, including but not limited to intensified inflation, currency depreciation, and so on. Therefore, the US government and the Federal Reserve need to carefully weigh the pros and cons to balance the pressure of economic development and inflation, but the final result may also be that neither side is concerned and inflation is not suppressed, leading to a collapse in housing prices.