Blind faith in the Euribor rate reduction makes the mortgage market uncontrollable

The biggest problem in the financial world is that no one has a crystal ball it really works, and it is very difficult to predict what will happen to particular stocks, sovereign bonds, corporate bonds or the prices of assets such as housing.

It is impossible to know, although there are always clues that allow us to take a defensive or aggressive position, depending on how we assess the state of the market. However, in and within financial markets, especially the mortgage market, it is very common to think of forecasts as immutable categories. Despite the fact that time only refutes these forecasts.

History is full of examples. In 2007, a few days before the real estate bubble burst.Many families and professional investors purchased homes at prices that could never be recovered, paying real fortunes with the sole belief that real estate market prices never fell.

More recently, in 2020 and 2021, when mortgage financing hit rock bottom and fixed interest rates on 30-year mortgages fell even below 1%, many mortgage holders decided to keep their adjustable rate mortgages because no one in banking Even the Offices considered it possible that interest rates could rise by 2% in the next 5 or 10 years. We only had to wait a few months for interest rates to rise to 4%.

The issue of adopting forecasts or expectations as categories in such decisions is critical and, again, the banking and finance sector is engaged in this. No one in the financial or banking sector doubts that sooner or later interest rates will begin a gradual decline that will bring them towards the consensus environment of 2%. However, the money supply continues to expand and inflationary tensions persist. It’s more.

In January, it forecast at least seven rate cuts in 2024, with the first coming in the first quarter. Rates are expected to start falling in the summer. The most optimistic speak about June. However What confidence is there that this is so? Those betting on falling rates have it on their side that those who set monetary policy are just politicians, and none of them want to see banks or companies go bankrupt and their economy fall into recession (an inevitable consequence greater economic growth). interest rates. It may be added that this is a necessary consequence for the exhaustion of excessive monetary expansion). Those who believe that interest rates will remain high or even rise further are those who believe that the money supply (inflation) has not been adjusted and that this will require raising interest rates if we are to eliminate risk. hyperinflation.

How will this affect mortgage holders?

So things are like this How will this scenario affect mortgage holders? How will this affect those who are forced to take out a mortgage? Which mortgage loan is optimal at this time: fixed, variable or mixed?

If we pay attention solely to the market consensus, which believes that rates will fall again, and very soon, we may avoid good offers on fixed-rate mortgages or even mixed offers with good terms. Those who are still thinking about converting to a fixed rate mortgage and who have more than doubled their mortgage payment today will think that they will already be waiting for a rate cut.

Thus, this consensus may act as a disincentive for many mortgage holders or potential home buyers through a mortgage. Recently To end published a study saying rising mortgage prices are delaying the decision to buy a home. The price of mortgages, which continues to remain at its maximum level, despite the fact that Euribor gave a little respite until a few days ago when it went up again.

Recent research confirms that the number of people who at some point have difficulty meeting their mortgage obligations has increased significantly. Inflation, coupled with rising interest rates, has become a deadly combination for the family economy of millions of families in Spain (some studies show that one in four families with a mortgage had problems meeting their financial obligations).

Another piece of data we have to work with is that Contracting for adjustable rate mortgages has increased significantly this year. A market reaction consistent with the belief that interest rates will return to levels close to zero. So much so that a paradox arose: only loans with a fixed interest rate fell in price.

Asufin’s research shows that mortgage supply has worsened compared to a year ago. In February, the global average annual rate was 4.6%. This compares to 4.48% in the same month in 2023. The increase comes primarily from unlinked adjustable rate mortgages, which rise from 4.9% to 5.53%.

In a mixed mortgage, the price also rises, but in a different way. Without ties, the price in this category increases from 4.55% to 4.57%, and with ties the increase is higher: from 4.17% in 2023 to 4.33% this year. For our part, although very slightly, fixed mortgages are the only ones that drop to 4.51% from 4.56% for those not considering bonds; and up to 4.11% from 4.14% for those that require connection.