Taking Cues from the US
In the US, between 2020 and 2022, homeowners locked in remarkably low sweetheart 30-year mortgage rates ranging from 3% to 4%. With current rates hovering around 7.5%, refinancing has become prohibitively expensive. This has led homeowners to stay put in their existing residences, investing in doing up their homes instead. First-time buyers are also grappling with the challenge of entering the property market. The property market is experiencing a resultant significant decline in secondary home sales.
US Housing Supply Conundrum
Given the subdued activity in the secondary market, the primary contributors to housing supply have become homebuilders, who are now enticing buyers with temporary buy downs, akin to teaser rates, at around 5%. New home sales in the US have remained relatively stable, down 8.7% month-on-month from July but up 5.8% compared to the same period the previous year. In contrast, existing home sales have dropped by 18.7% annually this August. The weak demand, largely influenced by mortgage rates reaching a 22-year high of 7.41%, is being met by an equally feeble supply.
Consequently, while many economists anticipated a property market crash, supply-side constraints seem to have helped support property prices.
Let us now look at how things are shaping up in the UK...
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