It had been anticipated and feared for several months… The rise in real estate rates has well and truly begun, and according to experts, it should even increase and last.
Real estate rates go up /iStock.com – sureeporn
Rates that remain attractive despite their upward trend
They were still described in 2021 as “historically low”… And it is true that with an average rate of less than 1%, home loans encouraged purchases! But the trend has gradually reversed: from 0.87% (over 15 years) in September 21, they crossed the 1% mark, to exceed it slightly in March, then in April of this year. And according to the experts, the ascent will continue, slowly but surely in the months to come. Despite this reversal of the curve, and a continuing upward trend, note that real estate rates remain attractive, however, in the inflationary context that we are experiencing. Indeed, with inflation expected at 4%, even if rates – as some experts claim – reach 2% by the end of the year, they will, in reality, remain below the rising cost of life.
When the Fed coughs, the OAT sneezes…
The causal relationship between the rates applied by the American central bank (FED) and the rate of real estate loans for French individuals is explained as follows… When the Fed increases its key rate, this increase causes the OAT to rise, that is to say the rate of “Treasury-equivalent Bonds”. This has an impact on the refinancing of banks, which is revised upwards… And the banks pass on this increase to their customers, in particular by “selling” their mortgages at a higher price. However, the American central bank has just increased its key rate by 0.5%, thus following the same movement at the fixed rates practiced by the banks. Note: variable rate mortgages are, for their part, correlated to “Euribor rates”, and are therefore not affected by this mechanism.
An upward trend that is not homogeneous but generalized and is set to last…
To deal with the health crisis, the states have exploded their debts, thus favoring the revival of the 10-year OAT rate. Moreover, in order to keep the euro competitive against the dollar, the European Central Bank (ECB) could be tempted to align itself with the recent hike in the key rate decided by the Fed. All these factors inevitably have an impact on the European banks’ mortgage lending policy, even if they do not all act in synchrony. Indeed, the rates granted continue to vary according to the establishments. Some banks choose to increase them in small proportions but at regular rates. Others readjust them less frequently, but more abruptly. One thing is certain, however… The economic context will force all the banks to follow the upward trend, while other factors including, in particular, the geopolitical context, encourage them to tighten, at the same time, the conditions of getting loans…