The Fed rate hike in the last few months has increased uncertainty to mortgage borrowers as the debt-crisis debate intensifies.
The global market indexes edged lower on Wednesday following several high-impact news. Already, the market was not pleased with the UK inflation data, whereby the country recorded a price hike of about 1.2 percent MoM basis whereas a Reuters consensus forecasted a rise of 0.8 percent. Notably, the United Kingdom’s inflation data came in at 8.7% whereas analysts expected 8.2 percent.
In the United States, the debate on the debt ceiling and the timeline kept traders worried about rate hikes despite the assurance of an amicable solution by President Joe Biden.
Mortgage Borrowers Fear Rising Interest Rates
Earlier this month, the United States Federal Reserve announced interest rates of about 5.25 percent, a spike of 2.5 basis points since last November. As a result, investors are mostly convinced of another rate hike toward 6 percent, which means more pain for borrowers. According to a data report from the Mortgage Bankers Association (MBA), the Market Composite Index – a measure of mortgage loan application volume – decreased by 4.6 percent during the week that ended on May 19, and was 5 percent lower than the previous week on an unadjusted basis. As a result, the 30-year fixed rate increased to 6.68 percent, according to Joel Kan, MBA’s Vice President and Deputy Chief Economist.
“Since rates have been so volatile and for-sale inventory still scarce, we have yet to see sustained growth in purchase applications. Refinance activity remains limited, with the refinance index falling to its lowest level in two months and more than 40 percent below last year’s pace,” Kan noted.
Kan added that investors remained weighed down by the uncertainty on the United States debt ceiling and the fact that the dollar is heavily attacked by the BRICS organization on the reserve currency status. The Fed seems relaxed in its fight against inflation through bank bailouts, investors are more worried higher interest rates will keep on coming in.
“… Economic data released over the past week have also pointed to a still-resilient economy. The housing market received positive data on new residential construction – which is seen as a key solution to the lack of housing inventory,” Kan added.
Emerging Conflict
The rise of the digital economy, which to a greater extent has shown a high success rate compared to traditional Web2 businesses, has significantly shifted the investment strategies of most global economies. Already, the Bitcoin ecosystem scaled to a trillion market capitalization during 2021’s bull rally. While Bitcoin’s valuation has since dropped, a lot of global investors have preferred to invest in the Web3 industry, which has a higher risk-to-reward ratio than the construction industry. Moreover, the scalability of the digital economy through artificial intelligence (AI) has significantly attracted huge money from big global corporations.
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