In an adverse financial environment, the first indicators to fall are precisely those of the financial markets: stocks and bonds are a current reflection of this situation, without a doubt.
In this context, one of the last indicators to fall, a victim of volatility, is the mortgage market, but now everything indicates that its turn has come.
In the United States, and it is expected that in Mexico as well, the combination of rising mortgage rates and property prices begin to make it difficult to access housing loans and thus affect the sectorwith multiplier effects on the economy since, as we know, the housing sector is like a center of gravity for several others (construction, materials, transportation, etc.).
The housing sector always behaves at a different speed compared to other economic indicators due to its long-term perspective. The market has become even more stable with the arrival and democratization of fixed-rate loans, which brought more stability to this market. But the most dizzying rise in interest rates in decades by central banks has begun to unravel the landscape in this market that is usually more solid.
The economists of the insurer Allianz already consider that housing is the next focus of economic instabilityand that is bad news, because they even consider that the crisis in this sector could deepen the recession forecast for the following year.
Home prices have held up so far, but at Allianz property prices are expected to contract by about 15 percent over the next 12 monthswhich will inevitably push the US economy into a recession in 2023, with GDP expected to be minus 0.7 percent for that year.
The situation in other parts of the world could be similar, global markets have interconnection channels that immediately reflect the problem of one region in another that is related.
Mexico will also suffer
In the middle of this year, specialists in the mortgage sector considered that the increase in the reference rate by Banxico would affect the weighted interest rate for mortgages, thus they calculated that the average rate would close the year around 11 percent, from an average percentage of 10.30 percent Registered last May. But the scenario has changed drastically.
This Thursday, when the Bank of Mexico (Banxico) announces that it has decided to increase its reference rate to a historical level of 9.25 percent (historical as a monetary policy tool, not as an indicator), the rest of the credit market will adjust its costs more of what has already been done, including the mortgage.
Thus, considering the spread that specialists expected between Banxico’s reference rate and the weighted average, mortgage loans will rise to at least 12.5 percent.
But this rate is only an expectation, in fact the credit markets will face additional problems beyond the cost of money.
For example, credit analyzes will now be more scrupulous, not everyone will be able to access a home loan in an economic environment like the current one. Not to mention the guarantees, the levels of “down payment” required and additional costs such as insurance, to name a few.
Fernando Soto-Hay, general director of Tu Hipoteca Fácil, explains in an article that a mortgage loan of 5 million pesos with an annual interest rate of 8%, the borrower would be paying less than 400 thousand pesos in interest and their monthly payments. , about 33 thousand pesos would correspond to interest.
However, when the rate rises to 9.75%, the financial cost of that credit rises to 487 thousand pesos, that is, 40,625 pesos per month will be for pure interest.
Although the current scenario is still not remotely similar to what our country experienced in 1995it is a fact that the market is beginning to have credit placement problems and, of course, they are related to the costs of the increase in interest rates.
But, as we pointed out, the mortgage sector in Mexico has additional concerns related to the economic environment, since rate indicators are a benchmark, but not the only one.
Beyond the financial cost of a home loan, home buyers have concerns unrelated to rising interest rates, job stability being one of them.
Another very important problem, especially in large population centers such as Mexico City and its suburbs, is undoubtedly the lack of housing.
The mortgage market in Mexico is experiencing a paradox; On the one hand, it is possible that the decrease in demand and the restrictions of the banking system for the granting of credits will lower the prices of houses. On the other hand, the uncertainty and low availability of quality housing, as well as the economic slowdown, will impact this market.
What is almost a fact is that the housing sector in both Mexico and the United Stateswill already reflect the crisis that the economies are experiencing.
Other warnings
Other institutional analysts have also warned in recent days about the impact of the crisis on the real estate sector in the United States and the world.
For example, JP Morgan says that the Fed’s tightening has reduced activity in the housing market and is causing additional weakness in a few different housing indicators.
Allianz points out that, at least in the United States, the effects are already being seen; They consider that banks have already begun to turn off the mortgage loan in the face of economic uncertainty and the risk that borrowers will be unable to repay the loan due to high interest rates.
Likewise, investment in new housing should also suffer a brake that in a certain way will cushion the fall in prices, but it will stop the market, and also the economy.
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