An op-ed piece by our Co-founder and Chief Underwriting Officer – Saul Kramer
Currently, the financial markets are going through a period of great uncertainty. There are plenty of signs regarding a possible recession in the air. This includes 2-year treasury bonds yield surpassing 10-year treasury bonds. This yield curve inversion is considered a major red flag in the financial world. In addition to that, the U.S. GDP decreased by 1.4% in the past three months. This is the first time the GDP declined since the second quarter of 2020, during the peak of the Covid-19 pandemic.
On the other hand, unemployment rates in the United States remain low for now. The housing market is also very strong with pricing increasing from month to month, generally speaking. Rental prices have been following housing prices to an extent, and have also increased exponentially.
This could be due to the current supply chain chaos the world is currently experiencing. This is increasing the price of raw materials required to build a property. In addition to the supply chain issues, inflation is also contributing to high housing prices despite rising interest rates.
During the past four to five months we’ve been witness to the most significant increase in mortgage rates in a decade. This is because the Federal Reserve is increasing interest rates as a tool to combat inflation and possibly a recession.
Just a year ago, US citizens purchasing property with good credit would likely be approved for a 30 year mortgage with a fixed rate of under 3%. In today’s market, with an identical property, the buyer may be approved at an interest rate that has already exceeded 5%.
With investment properties and second homes, the rates are even higher. Typically this can be 6-7% for both American and international property investors in the United States.
Existing owners of investment properties seem to be well safeguarded from the specter of a recession that is looming on the horizon. This is because they have likely received fixed rate mortgages at a currently unobtainable interest rate. That and with housing prices and median rent on the rise, their profits will likely outpace any inflation.
As an alternative, we at USA-Mortgages are able to offer international property investors different types of loans that few others in the market can. This includes variable rate mortgages with attractive terms.
That being said, we’re still viewing some uncertainties in the global market which can affect the U.S. housing market to a degree. This includes the ongoing war between Russia and Ukraine that has fueled commodity prices. In addition to this, there is China’s Covid crackdown which is affecting global supply chains, and the stock market uncertainty. The U.S. Dollar is still seen as a safe-haven to many and as such the US Dollar Index is soaring to the highest high seen in decades.
Should current trends continue, real estate and property as an investment is still a solid and recommended investment. While the market may have gone from white-hot to just hot, and certain rural areas may see a minor decline. Despite this, the U.S. housing market is still very strong and continues to be a safe haven for investors.