Interest Rate Hike Sparks Real Estate Data Plunge by 35%

Recently, the decline in the U.S. financial market has come to a temporary halt, with the market becoming relatively stable and even experiencing a slight rebound. The U.S. stock market has rebounded by more than 10% from its low point, and the yield on U.S. Treasury bonds has also stopped rising, with yields for most maturities having fallen back below 4%.

The temporary recovery of the U.S. financial market is based on one foundation: the prediction that the pace of interest rate hikes by the Federal Reserve will gradually slow down. However, investors have suddenly discovered that this prediction may be off the mark. It is not ruled out that the Federal Reserve may once again implement a substantial interest rate hike and extend the cycle of rate increases.

Under such circumstances, the likelihood of the U.S. economy falling into a recession is growing, and the possibility of a collapse in the U.S. real estate market is also gradually increasing.

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Before looking at the latest GDP figures, let's review the GDP for the first and second quarters of this year. At that time, the first quarter saw a quarter-on-quarter contraction, and concerns began to arise that under tight monetary policy, the U.S. economy would fall into a recession.

Unexpectedly, the GDP for the second quarter fell again on a quarter-on-quarter basis, which had already entered the technical recession recognized by the economic academic community. However, what was unexpected was that when the preliminary GDP for the third quarter came out, it showed a growth of 2.9%, and the latest data indicates that the GDP for the third quarter was revised to an increase of 3.2%, reversing the unfavorable situation of two consecutive quarters of decline. The so-called U.S. economic recession seems to be going away.This is undoubtedly good news, but for the financial world, it is also a big bad news.

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The sharp rebound in GDP on a quarter-over-quarter basis indicates that the economy still has the risk of overheating.

At the same time, the number of new unemployment benefit applications in the United States remains low, which also shows that the labor market is still very strong.

Everyone is worried that the conclusion made by the Federal Reserve is that the U.S. economy is not only not in recession, but there may also be a rebound in inflation. As a result, the original expectation that the Federal Reserve will raise interest rates by 25 basis points next year, and may even gradually stop raising interest rates, now it seems that this expectation is very likely to fall through.

In fact, several officials of the Federal Reserve have stated after the interest rate hike in December that controlling inflation is still the main goal in the future, and the terminal interest rate will be higher than the previous forecast.

That also means that at least the interest rate hike will continue for a period of time, and even after stopping the interest rate hike, the interest rate will still be maintained at a high level for a period of time to observe the situation of inflation.

In this unfavorable situation, the risk of a real estate crash in the United States is gathering.

The latest data from the National Association of Realtors shows that the sales data of real estate in the United States is very unsatisfactory, with a significant quarter-over-quarter decline of nearly 8%, and a year-on-year decline of 35% compared to last year.

This decline is second only to the situation during the 2008 subprime mortgage crisis, and it is the second largest decline in the past 100 years of traceable data in history.If the Federal Reserve continues to raise interest rates and maintains high rates, it is believed that there will be little change in real estate data.

The main reason is that the current mortgage interest rates have remained at a high level for nearly a decade. Although there has been a slight decline compared to the highest point in October, compared with the low interest rates in the United States since the subprime mortgage crisis, the current mortgage interest rates are two to three times the average rate.

Now, housing prices have fallen on a month-on-month basis, but they are still slightly higher compared to the same period last year.

However, experts believe that as the transaction volume plummets, the decline in housing prices will continue to increase. Wall Street investment banks believe that the overall housing prices in the United States will fall by 15% to 20% next year.

In the middle of this year, the median price of a house in the United States was $413,800. But now it is gradually falling, and it has already broken through $370,000, with a decline of nearly 10%.

If, according to Wall Street's forecast, it falls by more than 15% on the current basis, then the United States may have a large number of negative assets, and the assets of ordinary American families will decline significantly.