US home prices are headed for a major contraction as Donald Trump’s former economic adviser warns that the US economy is in a “perilous situation”.
Steve Moore warned that if mortgage rates increased further, it would become very difficult for Americans to buy a home, and that individuals would pay much more money over the life of their mortgages.
Average interest rates on five-year adjustable-rate mortgages jumped to a 12-year high last week, while fixed-rate mortgages also rose.
Speaking to GB News, Moore said he was “concerned” about the housing market and warned that current high mortgage rates would lead to house price deflation.
US Federal Reserve
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“When mortgage rates go up, and they’ve gone from 2 to 7 percent over the last two and a half years, that means a higher mortgage rate hurts the homeowner and the seller,” he said.
“It drives down prices and makes it harder for people to buy a home.
“We estimate that the average homeowner who purchases a median home with higher interest rates will now pay an additional $150,000 over the life of their mortgage.
“It’s a lot of money. So I’m concerned, and I think the bottom line is I’m concerned about the housing market and I think at some point maybe soon we’ll see real deflation in prices.”
If US mortgage interest rates remain above 7 percent, it will be the most painful path for homeowners since January 2002.
According to Moore, interest rates could also rise, causing the cost of repayment to rise.
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“We will soon see real price deflation,” Moore said.
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Watch Stephen Moore discuss the housing crisis
Combined with rising costs of living and inflation, which rose 3.7 percent according to numbers released by the Bureau of Labor Statistics today (September 13), prices for individual Americans are at risk of spiraling out of control.
“I think the inflation situation looks bleak as well,” Moore said when asked about August inflation numbers.
“Globally, we see oil prices now at $90 (£72) per barrel. This is a significant increase over the last month or two when the price was $65 (£52) per barrel.
“So when your energy prices go up like that, the price of everything goes up because energy is the main resource, and everything we produce has an energy component in it.
“I expect that the inflation rate will rise on an annual basis to about four percent, but what is really scary is that the monthly figure will be close to 0.7 percent.
“So, do the math, that means if this continues for a year, you’re talking about eight or nine percent inflation.
“I don’t expect it, but I think we will be in the 4 to 5 percent inflation range, and people should know that our target inflation rate is 2 percent.
“That means the Fed will look at these numbers and panic.
Joe Biden
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“So I wouldn’t be surprised if we raise interest rates again.
“And that’s a problem because look at what happened to mortgage rates here.
“I would say the US economy is showing some signs of strength, but it is also in a very precarious situation.”
Today’s inflation numbers exceeded expectations, which were estimated to rise by 3.6 percent, compared to 3.2 percent in July.
On a monthly basis, prices rose by 0.6 percent.
When asked about the impact on individual Americans, Moore said: “Inflation is just a killer. It’s a regressive tax on American families.”
“Low-income people suffer the most when there is inflation, while middle-income and wealthy people do not suffer at all from inflation.
We have seen real incomes for middle-class Americans decline dramatically under Biden.
I think this will be his Achilles heel when he runs for re-election.
He added: “I think these inflation figures are very worrying.”