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Real estate market in the US continues in free fall and returns to 2016 lows

It seems that the United States has not completely come out of the economic slowdown that it has been experiencing since the middle of this year due to inflation, which has already hit the oil market, reduced business growth projections, has the dollar immersed in volatility and is now depressed. for the sixth consecutive month the real estate market.

The rising cost of living continues to hit the purchasing power of households in this country, or at least that is perceived in the new home sales report, which continued to fall in July, for the sixth consecutive month, to its lowest levels since 2016.

According to data from the Department of Commerce published on Tuesday, 511,000 houses were sold last month in an annual projection (the figure for 12 months if the conditions at the time of the measurement were maintained), 12.6% less than in June and almost 30% less than a year ago.

The figure is well below analysts’ projections for a small drop of 575,000 sales. The real estate market suffers from the increase in interest rates by the Federal Reserve (Fed, central bank), which seeks to cool the economy to combat inflation.

The rise in the cost of credit, and house prices that remain high, affect property purchases, which fell for the sixth time since February. Median prices for new homes hit $439,400, up from $414,900 in June, and the median price was back above $500,000.

Existing home sales, which account for 80% of the US housing market by volume, had also fallen sharply in July.

Expectation in interest rates

Raise rates to fight inflation, but not too high to keep the economy from bringing to its knees: This dilemma facing central bankers around the world will be at the top of the agenda at their annual meeting in Jackson Hole, US, on Thursday. and Friday.

The most awaited moment of this international meeting will be the speech by the president of the FED, Jerome Powell, next Friday. Andrew Bailey, the Governor of the Bank of England (BoE), confirmed his presence, although he announced that he will not speak.

The president of the European Central Bank, Christine Lagarde, will not be present. But Isabel Schnabel, who sits on her board representing Germany, will participate in a panel on Saturday.

“The cards are on the table in economic matters: a common enemy that is inflation, a risk of doing too much to cool down the economy. You have to choose between the two ”, he summed up before the meeting Gregori Volokhine, Portfolio Manager at Meeschaert Financial Servicesin dialogue with AFP.

However, “the Fed cannot say that it must choose (…) between increasing unemployment or lowering inflation, but it is the choice it has,” he added.

This meeting will take place at a time when central banks around the world are adjusting their rates upwards to fight inflation, despite the fact that this may affect the recovery after the covid-19 pandemic. An increase in interest rates makes credit more expensive and, therefore, it curbs consumption and investment, thus cooling the economy and putting pressure on prices.

The Fed has already raised its benchmark interest rates four times since March, and the market is wondering about the magnitude of future hikes that are taken for granted. U.S. 12-month inflation moderated in July to 8.5% from 9.1% in June, a figure that marked a 40-year high.

*With information from AFP.

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