Not only Polish mortgage loans have become more expensive

In the US, after interest rate increases, the installment of a new loan increased by 50 percent. For comparison, the Polish loan installment increased in a similar period by almost 80 percent. Except that in the US housing loans are granted with a fixed interest rate, which means that only new borrowers pay more. Despite more expensive loans, the demand for a home in the US remains high.

In the US, a fixed-rate loan is standard

A typical American mortgage loan is issued at a fixed interest rate for the entire period of 30 years. This is a big difference compared to loans in Poland, which are granted with a variable interest rate or now more and more often with a fixed rate for a period of 5 years. The situation in which the interest rate does not change throughout the loan period means that customers willingly refinance loans when interest rates drop. In this way, they reduce the interest rate for the entire remaining repayment period. However, when rates start to rise, such a mechanism leads to "concreting" the market - owners of houses with cheap credit do not want to sell them for fear of losing it. This significantly reduces the supply of flats and houses from the secondary market, which accounts for 85 percent. sales in the US (15 percent is the new real estate market).

The current average interest rate on new US mortgages is 6,8%. (official interest rate The Fed is 5-5,25 percent.) compared to levels below 3% still available in 2021. This means that the monthly mortgage installment is currently around 3. dollars, assuming 20 percent. down payment and an average home price of $0,5 million. The installments of such a loan increased by 50 percent. compared to the rate of less than 2%.

For comparison, the interest rate on new mortgage loans in Poland is currently around 9%. (at the interest rate NBP amounting to 6,75 percent.). It started to grow in Poland with the beginning of the cycle of interest rate increases. It rose from around 2,5 percent. in August 2021 to 9 percent. as of today, which means an increase in the installment of an average loan worth PLN 0,5 million for 30 years by 80%. 

Home builders are gaining despite falling prices

In the US, we are dealing with an increase in the interest rate on new loans, while the price of houses is falling. And paradoxically, home builders' stocks were among the best performing this year. This is due to the fact that there is still a strong demand for new homes, supported by demographic factors. And the supply and stock of new homes on the market is limited. The mechanism described above, on the other hand, discourages owners of houses with cheaper loans from selling them, which limits the supply on the secondary market. We are dealing here with a market anomaly because if we look at indicators broader than housing REITs (AVB) to infrastructure (PAVE) as well as the price of wood used to build houses in the USA, they did not record such increases. However, those sectors appear to be probably past the worst as interest rates approach peak levels and the US economy remains recession-proof.

The S&P Homebuilders Select Industry Index is up 20 percent this year, double the broad S&P 500 index. higher than the lowest level in 40. Monthly sales of new homes are up 2022 percent. higher than the 25 low and 2022 percent. above the long-term average. While available stock levels are at their lowest in a year at 5 months. Average selling prices have fallen to $8 as a result of an increased share of first home buyers (usually smaller and less expensive). By contrast, sales of existing homes fell by 420 percent. compared to the previous year and is 000 percent. lower than the long-term average. Major developers such as Pulte and DR Horton have seen gains but are still prepared for uncertain times, with their P/E currently below 30x.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.