Housing prices are climbing steadily while housing demand is falling.
According to the Fed minutes, there will be no surprises on the subject of increasing interest rates. It is unlikely that the Federal Reserve will increase interest rates and shrink its balance sheet in the next three weeks. But, for certain, the federal government will start the first hike in mid-March or late March. Till now, it’s not certain how aggressive the central banks will be, but there is a high potential for aggressive interest hikes.
The U.S. economy has been under massive inflationary pressure in the past three months. Leaving the Federal Reserve in a harsh position, the fears of rising interest hikes have put the housing market in a more complex situation. The refinance shares of the application just set a new low record, a decrease from 56.2% to 52.8%. This is the lowest decrease since the start of the pandemic. According to the expert, this dramatic decline in refinance applications was a result of mortgage rate increases. Recently, the treasury yield has risen, which has dramatically affected the mortgage rates that can lead to sharp hikes.
The housing market’s demand is still strong as ever, which puts us in a more complex situation in some senses. In December, house prices increased by 18.5% compared to 2020. The average contract interest rates for 30-year mortgage fixed rates have increased the most this week. In January, the average lion balance increased to 4.05%, which is considered a new record for average loan applications. Plus, last week there was a 1% increase in mortgage applications for home buying.
Getting back to the Fed minutes, it’s expected that the Fed will increase the benchmark rate by 1.75%. Plus a 0.25% hike in interest rates over seven different meetings, that is the general and the trending idea.
The market vulnerability is increasing
Energy prices are climbing steadily due to the latest developments in the Ukrainian crisis, leaving investors in a sensitive position. Investors and Wall Street’s reaction was a sensitive reaction to the Federal Reserve’s recent meeting decisions. As a result of the increased tensions in the Ukraine crisis, energy prices have also risen noticeably. Russia has claimed that it is withdrawing its troops from the Ukrainian border. But on Wednesday, NATO officials made a serious accusation that it was the opposite. NATO has accused Russia of increasing its military force on the border.
This accusation was the result of increasing energy prices. Natural gas prices increased by 7%. Various names from the S&P have recorded big gains, but we can’t say that for the rest of the companies.
The Federal Reserve is now coordinating efforts to make stable interest hikes while the U.S. government is seeking some way to compromise on the current geopolitical crisis. Still, the U.S. president has made it clear that in the event of military action, the U.S. and its allies will respond aggressively. In the case of a year, no one will, and the biggest losers will be the global energy industry and the manufacturing industry as well.
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