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US Real Estate Market Faces Challenges as Interest Rates Surpass 7%

Rising Mortgage Loans and Fed Action

In August 2023, mortgage loan interest rates in the United States exceeded the 7% mark for the first time since 2022. This significant increase is partly due to the Federal Reserve’s decision to raise benchmark rates between 5.25% and 5.50%. The Fed is now considering even tighter monetary policies and may require a period of growth below potential to avoid future inflationary blockades.

The central bank has stated that it will continue to implement restrictive monetary policies until inflation stabilizes around its target rate. As a result, property prices in many regions are either stagnant or rising further. Similar trends can be observed in France, where the real estate market is seemingly following the footsteps of its American counterpart.

Buyers Trapped Between High Prices and Limited Supply

  • High-interest rates deter banks from granting mortgage loans, making it difficult for buyers, particularly first-time buyers, to enter the property market.
  • Property prices remain elevated compared to current market conditions, discouraging prospective purchasers.
  • A lack of available properties contributes to the rising prices and constrained supply, exacerbating the crisis.

The combination of steep property prices and mounting interest rates places significant strain on buyers who struggle to secure loans. Moreover, owners and landlords appear unwilling to sufficiently lower selling prices to match the economic climate. Nevertheless, some property holders may find themselves forced to reduce their asking price if they wish to complete a sale promptly.

Seeking a Balance for Both Parties

A decline in property prices accompanied by persistently high-interest rates could help rebalance the real estate market, offering short-term benefits to both buyers and sellers. Lower property prices would potentially make houses more affordable for purchasers, while sellers may close deals faster if their asking prices are adjusted according to the prevalent economic situation.

No Plans to Lower Interest Rates in France

Despite the challenges faced by the US real estate market, France is set on maintaining its current interest rates for the foreseeable future. The country’s Economy Minister, Bruno Le Maire, did not go into detail during his interview with France Inter radio, but he firmly stated that there would be no reduction in interest rates in the coming months.

Key Takeaways from US and French Real Estate Markets:

  • US mortgage loan interest rates rose above 7% in August 2023, a first since 2022.
  • The Federal Reserve increased benchmark rates between 5.25% and 5.50%, contributing to escalating interest rates.
  • America’s property market struggles with rising prices and limited supply of available properties.
  • France appears to be experiencing similar trends as the US, but it remains steadfast in its decision not to lower interest rates.
  • Both markets could benefit from a rebalancing act, which includes reduced property prices and continued high-interest rates.

Moving Forward: Overcoming Challenges in the Property Market

While the US real estate market grapples with high-interest rates and inflated property prices, one potential solution involves lowering property prices to create a balance in the market. This strategy might provide relief to buyers struggling to secure loans and expedite sales for property owners who are willing to reduce their asking price. Meanwhile, France aims to maintain its current interest rates in an effort to stabilize its market.

Although the housing markets in both countries face different obstacles, finding and implementing effective solutions is crucial for the growth and prosperity of their real estate sectors. As stakeholders navigate these challenges, change may be inevitable, but it could ultimately result in more sustainable markets for all involved.

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July 2024