According to Robert Shiller, a renowned economics professor at Yale University, the fear of rising interest rates is impacting the real estate market. This sentiment is not only affecting current homeowners but also potential buyers who are eager to make a purchase before interest rates increase even further.
Shiller highlights that U.S. home prices have experienced a steady upward trend since 2012, as indicated by the S&P Case-Shiller U.S. National Home Price Index. However, he believes that this decade-long rally might come to an end once the Federal Reserve concludes its rate-hiking cycle.
The professor explains that many buyers have been motivated to enter the market to lock in favorable interest rates. This has had a positive influence on the market, but Shiller believes this trend is nearing its end. He acknowledges the index’s recent “unusual behavior” in the past six months, where prices appeared stable but then began to rise.
In May, U.S. home prices reached a record high, increasing nationally by 0.7% from April, according to the Black Knight Home Price Index. Shiller suggests that people are uncertain about the Fed’s future actions and how they will impact the market. While the Fed has indicated the likelihood of further tightening, it will occur at a slower pace compared to previous rate increases.
Shiller acknowledges the significant increase in interest rates over the past couple of years and speculates that there is a general sentiment that these rate hikes have been sufficient. He believes there is a possibility of a soft landing in the real estate market, but it may not be a perfect one.
However, Shiller remains calm and emphasizes that part of the recent surge in home prices may be attributed to seasonal factors, noting that prices typically rise during the summer months. He also mentions that the Fed is scheduled to meet soon, and economists surveyed by Reuters anticipate a 25 basis point interest rate hike.
In conclusion, Shiller’s insights highlight the impact of rising interest rates on the real estate market. While home prices have experienced a prolonged upward trend, there is growing concern that this rally may come to an end once the Federal Reserve concludes its rate-hiking cycle.
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