Asset Values Soared but US Mortgage Rates Also Jump to 6% Range
Stocks → Cryptocurrency → Next is Real Estate?
Concerns Rise Over Asset Collapse Amid US High-Intensity Tightening
[Asia Economy Reporter Kim Hyunjung] The scale of housing assets in the United States has surged to an all-time high, but the market faces collapse concerns due to the authorities' high-intensity tightening to curb inflation. It is forecasted that the next phase of asset value collapse, following stocks and cryptocurrency, will be real estate.
On the 15th (local time), the Wall Street Journal (WSJ), citing the Federal Reserve (Fed), reported that the total US housing assets increased by nearly 20% in the first quarter to a record high of $27.8 trillion (approximately 3,590.3 trillion KRW). This quarterly increase is the largest since 2013.
The biggest factor is the rise in US housing prices. The S&P CoreLogic Case-Shiller National Home Price Index, which measures the average home price in major metropolitan areas nationwide, rose 20.6% year-on-year as of March. This is the highest annual price increase recorded since the index began in 1987.
◆ US Mortgage Rates Surpass 6% = Although asset prices have risen, the market is deeply frozen. The biggest impact is that US mortgage rates have exceeded 6% annually for the first time since 2008 due to the Fed's unprecedented tightening. According to mortgage news outlet Mortgage News Daily, the 30-year fixed mortgage rate in the US surged by 0.73 percentage points from the previous week to 6.28% on the 14th, then eased immediately after the Fed's 'giant step' announcement to 6.03% on the 15th.
Mortgage demand is also plummeting. According to the US Mortgage Bankers Association (MBA), total mortgage applications last week dropped 52.7% year-on-year. Joel Kan, an economist at MBA, explained, "The sharp rise in rates is reducing refinancing volume, and these rates, along with soaring home prices and a shortage of listings, have severely hit the demand sentiment of prospective homebuyers."
Transactions have also frozen, especially in the high-priced housing market where large loans are required. According to a survey by real estate brokerage Redfin, transactions of high-priced homes within the top 5% of the market decreased by 18% year-on-year over the three months from February to April. This is the largest contraction since the early COVID-19 pandemic period from April to June 2020, when high-priced home transactions plunged 23.6% compared to the previous year.
The interest burden on existing borrowers is also a concern. According to mortgage data company Black Knight, about 60% of existing mortgages were 'cash-out refinances' last year when rates were lower than this year. Cash-out refinancing means refinancing an existing mortgage to borrow again based on the increased home value, paying off the existing loan, and using the remaining cash for other purposes.
◆ Stocks, Cryptocurrency, Next is Real Estate? ... Musk Says "True" = The industry's high-intensity workforce restructuring also supports the market's pessimistic outlook. US real estate brokerages Compass and Redfin announced plans to cut 10% and 6% of their total workforce, respectively, as the market cooled due to rate hikes. Financial institutions such as Wells Fargo and Rocket PKT also reduced mortgage-related staff, and online mortgage brokerage Better.com laid off 900 employees in December last year and continues to reduce staff.
Elon Musk, CEO of Tesla and a major influence in the asset market, added that real estate prices could soon collapse. On the 15th, he commented "True" on a tweet by Dogecoin founder Billy Markus, who shared a graphic implying that the next phase of asset value collapse following stocks and cryptocurrency is real estate, calling it "the end of the world as we knew it."
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