The European sovereign debt crisis, which has caused turmoil in global markets, has brought an unexpected surprise to U.S. homebuyers—as overseas hot money has flowed into the U.S. to seek a safe haven, U.S. mortgage rates were pushed down to below 5% on May 25, Beijing time, hitting a nearly 50-year low. Meanwhile, another set of data released that day showed that U.S. existing home sales in April increased by 7.6% month-on-month, rising to a five-month high.
"It's almost insane," Jeff Lazerson, president of the U.S. mortgage brokerage Mortgage Grader, told The Wall Street Journal, noting that a 30-year fixed-rate mortgage as low as 4.25% is "something I have never seen in my 24-year career."
In fact, in the last week of March, when the Federal Reserve ended its $1.25 trillion bond-buying program, the market was worried that mortgage rates would rise as a result, causing the property market to return to a slump. However, in April, as the Eurozone sovereign debt crisis spread, hot money fled the European market and poured into the U.S. for safety, causing U.S. mortgage rates to hit new lows repeatedly and unexpectedly boosting home sales that month. According to data provided yesterday by the National Association of Realtors, U.S. existing home sales in April increased by 7.6% month-on-month, reaching a seasonally adjusted annual rate of 5.77 million units, indicating that the foundation for the continued recovery of the U.S. housing market has been laid.
"The European sovereign debt crisis is the 'driving force' behind the decline in U.S. mortgage rates." While economists generally agree with this view, they are more concerned that this will be detrimental to the global economic recovery. U.S. mortgage rates are closely linked to the 10-year U.S. Treasury yield. Analysts believe that the flight of large amounts of capital from Europe to seek safety will drive up U.S. Treasury prices. Historically, this phenomenon (a decline in borrowing costs brought about by a debt crisis) is not the first time. In the autumn of 1998, when emerging markets, especially Russia, experienced debt defaults, it also benefited U.S. homebuyers significantly.
However, as the U.S. government's tax credit policy is set to expire on June 30, it is expected that the robust housing demand may be impacted in the coming months.
In the U.S. housing market, existing home sales are the main force, accounting for about 85% of total housing market sales. Since the U.S. housing bubble burst in early 2006, the U.S. housing market has been undergoing drastic adjustments and has become the root cause of this financial crisis.
