US real estate interest rates reach 7.57% and slow demand for housing

Average 30-year fixed mortgage rate in the US reaches 7.57%, cooling demand for new financing. Rising borrowing costs compress the purchasing power of American families and hold back transaction volume. The 'lock-in' effect keeps the stock of used properties low, supporting prices despite the drop in demand. Liquid investors (cash buyers) and Brazilians benefit from greater bargaining power in negotiations. Private Equity Real Estate managers shift focus to real estate debt and distressed assets. The United States real estate market is once again facing strong pressure on the cost of residential credit. The average 30-year mortgage rate reached 7.57%, triggering a new round of slowdown in the search for new loans and the signing of purchase and sale contracts. This movement reflects the Federal Reserve's (Fed) stance on maintaining the basic interest rate at high levels to contain residual inflationary pressures. The continued rise in the yield on US Treasury bonds maturing in 10 years (the 10-year Treasury yields), a direct reference for mortgage pricing, has been the main driver of this cycle. With interest rates at around 7.57%, the cost of purchasing a home in the USA remains at levels significantly higher than those observed in the last decade. For the average American buyer, the impact translates into heavier monthly payments, forcing the postponement of acquisition decisions and slowing the pace of the market. Unlike past cycles of monetary tightening, the current moment is marked by a structural imbalance in supply. Homeowners who took out financing at historically low rates — below 3% or 4% during the pandemic period — are hesitant to put their properties up for sale to avoid taking on new mortgages at 7.57%. This phenomenon, known in the sector as the rate lock-in effect, limits the entry of new used homes into the market, supporting prices even in the face of cooling demand. For Private Equity Real Estate (PERE) funds and real estate investment managers, this situation requires rapid adaptation in allocation theses. Models focused on purchasing and modernizing properties for residential rental (single-family rental) undergo revisions in expected return metrics. On the other hand, vehicles focused on credit and real estate debt find a favorable environment to originate financing with attractive premiums and solid guarantees. For Brazilian investors focused on allocating capital in the USA — especially in highly attractive markets such as Florida and Texas — the scenario presents important nuances. While leverage via bank financing in dollars becomes more costly, investors with high liquidity (cash buyers) start to enjoy greater negotiating power vis-à-vis developers and individual sellers, guaranteeing favorable entry conditions. The high interest rate environment also casts shadows on real estate funds (REITs) and the commercial segment, which face refinancing corporate debt at considerably higher costs. If mortgage rates follow an upward trajectory towards levels of 8% or higher, analysts predict a broader repricing of assets, opening space for distressed strategies to capture opportunities at a discount in relation to equity value. As the Federal Reserve evaluates the next steps of monetary policy, the American real estate sector is expected to undergo a period of consolidation and selectivity. For cross-border investors in the Brazil-USA axis, the environment requires discipline in capital structuring, prioritization of operational income generation and focus on markets with strong demographic and economic dynamics. Source: housingwire.com - https://www.housingwire.com/articles/whats-next-for-housing-7-8-or-9-mortgage-rates/