When Donald Trump was reelected and took office at the start of this year, we knew it was going to be interesting!
The property market (and the mortgage market) here in the U.S. is in a bit of a gridlock at the moment – but it’s not Trump’s fault.
There are not enough houses, not enough new ones being built and probably fewer people to build them. For those who can buy, with rates where they are, it’s hard to make it pencil out.
Thanks to the way in which the U.S. mortgage market is structured, the most common way that someone buys a house is with a 30-year fixed-rate mortgage.
The 30-year fixed-rate mortgage has been called the ‘workhorse of the U.S. housing market’, and has allowed people to fix a rate and not have to worry about refinancing for a very long time.
STRUCTURAL DIFFERENCES
It’s obviously a very different market structurally to that in the U.K. This is possibly thanks to the implicit guarantee from the U.S. government that is provided to Fannie Mae and Freddie Mac, which owns about 70% of all U.S. mortgage production.
These two organizations have enabled a market where long-term fixed rates are the norm.
During the last decade or more of near-zero interest rates, most of the market either bought or refinanced onto historically low rates, and they ‘locked it in’.
Good for them! It was a great time for realtors, lenders and mortgage brokers.
MORE SENSE TO RENT
The issue that this has now caused is that if you’re wanting to sell your house, you don’t – because you don’t want to then have to buy another home with a new 6.5% mortgage rate, and if you’re looking to get onto the housing ladder, with interest rates this high, it makes more sense to rent.
So you have fewer people looking to sell their house and fewer people looking to buy, which has seen house sales volumes in the U.S. last year at lows not seen since 1995. That’s a 30-year low, and this year is tracking even lower in terms of volumes.
On top of this, the U.S. (like the U.K.) has had a multi-decade shortage in building enough houses to meet the growing population’s demand.
Furthermore, over half of the housing stock in the U.S. is over 40 years old and in need of repair.
This has created a solid backdrop for construction lenders and bridging lenders like our business, F2 Finance. There’s a real need for a greater supply of new and refurbished housing stock.
HOUSE PRICE RESILIENCE
While house sales volumes have absolutely crashed, house prices have remained pretty darn resilient. In fact, house prices nationally across the U.S. continue to tick upwards.
This seems to be simply a matter of ‘supply vs. demand’ economics. Whilst there are fewer people now looking to buy a house, there’s even less supply.
“Whilst a tonne of mortgage originators have gone bust the survivors are waiting for Trump’s badgering to pay off.”
Whilst a tonne of mortgage originators have gone bust over here, the survivors are waiting for Trump’s badgering of the Federal Reserve Chairman to pay off.
There are also the conspiratorial theorists who believe that Trump’s enthusiasm for tariff chaos, ‘crashing the market’ and driving up inflation, is designed to force the Fed’s hand into driving rates down faster.
It’s hard to think that the chaos is that well thought through or coordinated, but who knows!
“As I sit here in Los Angeles writing this, there are protests on the street.”
As I sit here in Los Angeles writing this, there are protests on the street over the government ‘rounding up’ illegal immigrants who have overstayed their visas.
I have heard firsthand stories of Immigration and Customs Enforcement (ICE) agents showing up at building sites and checking people’s documentation.
Regardless of where you stand on that issue, the result is that there are likely to be less people working lower-paid jobs in the near future – including those who might have previously been helping build more houses!
IN GOD WE TRUST
However, it does now seem clear that interest rates in the U.S. are going to come down at some stage, and probably sooner rather than later.
However, the fact that rates haven’t started coming down yet, is testament to the strength and resilience of the U.S. market.
When interest rates do finally start to come down, it should unlock a lot of activity – but it doesn’t seem like it can happen quickly enough for some.
