High inflation is forcing central banks around the world to raise interest rates. The US Federal Reserve (Fed) recently raised its benchmark interest rate by 0.75% to 3-3.25%, the third consecutive increase. But that’s not all: further increases are expected until the end of 2022. Thus, interest rates on 30-year fixed-rate mortgages have risen by 6.2%, the highest growth since 2008.
The European Central Bank (ECB) also raised its benchmark interest rates by an unprecedented 0.75 percentage point. But this won’t be a one-off action either: the ECB has signaled further hikes, which could be announced very soon. The institution has prioritized its fight against inflation, even as the EU economy is slipping into recession in the coming winter.
The Bank of England also raised its benchmark interest rate to 2.25% from 1.75% as inflation remains at an all-time high.
What is happening in the real estate markets?
Some major markets are already seeing a decline in property prices, symbolic in some places, but the trend is still down. Growth in house prices in United States of America for example, they too are finished reported a decline for the first time in ten years.
The S&P CoreLogic Case-Shiller national price index in 20 major cities in the country fell 0.44% in July. This is the first decline since March 2012. In July, declines were recorded in San Francisco (-3.6%), Seattle (-2.5%) and San Diego (-2%).
Demand decreases, offers for the sale of real estate remain on the market longer. According to Zillow Group, new listings fell nearly 23% in August year-over-year.
Housing prices in United Kingdom they can drastically decrease by up to 15%. According to Credit Suisse, UK house prices could drop very quickly between 10% and 15% over the next 18 months if Bank of England it aggressively raised interest rates in an effort to fight inflation.
Additionally, some analysts say the Bank of England will raise interest rates to 6% next year, from the current 2.25%, to support the pound’s plunge.
This will make it more difficult for potential buyers to obtain mortgages and slow down demand. A fall in demand would drive prices down.
Home prices in one of the largest real estate markets in the world fell for the first time in 10 years
In an attempt to tame inflation, the Fed raised interest rates
When it comes to mortgages, c Europe there are already worrying signs in one of the EEC markets. It has recently become clear that mortgage applicants in Poland fell by nearly 71% year-on-year in August. The data comes from the Credit Information Bureau (BIK).
The reason: There have been several interest rate hikes recently due to the highest inflation in Poland in 25 years. The Polish central bank raised interest rates for the eleventh time, driving up the cost of debt Poland it hit 6.75%, the highest level since 2002. Before that, inflation unexpectedly rose to a new 25-year high of 16.1%.
Interest rates plummeted in mortgage credit in the EU’s largest Eastern European country
Over 40% of borrowers benefit from a credit vacation
According to a local analyst, data from the Credit Bureau for August showed that high interest rates, tighter regulations, and fears of an economic slowdown and even a possible recession effectively froze demand for mortgages.
TO Sweden, which was once one of Europe’s hottest real estate markets, house prices have dropped about 8% since the spring and most economists are now forecasting a 15% decline. Rising interest rates are also putting pressure on real estate companies, which have borrowed heavily from bond markets to finance their operations, increasing investor anxiety about their ability to refinance debt.
