The US investment company PIMCO predicts that the residential construction market in the United States will slow down sharply in the next few years – the experts are also forecasting the same for the development of real estate prices.
PIMCO: The Corona-related boom in housing construction is over
In a recent episode of Bloomberg’s Odd Lots Podcast, Dan Ivascyn, Group Chief Investment Officer at fixed income investment firm PIMCO, spoke about his expectations for the US housing market in the coming years. Ivascyn forecasts that housing construction will slow significantly and decline nationwide in real or inflation-adjusted terms. Regarding real estate prices, the manager predicts that there will either be stabilization or, at most, extremely low single-digit growth rates. In fact, Ivascyn does not rule out a drop in real estate prices either, according to him such a development would not be at all surprising and not necessarily alarming.
Years of soaring home prices in the United States have been accelerated by the pandemic as Americans fleeing the cities and moving to the countryside in droves looking for space. To some extent, the slowdown predicted by Ivascyn would counteract this circumstantial boom. The US Federal Reserve’s interest rate hikes, of course, also contribute to the reversal of the trend, which according to Ivascyn makes house prices appear significantly more vulnerable. As NajaOnPoint notes, the trend in mortgage interest rates paints a clear picture of investors’ general fears of inflation and slowing economic growth. Because the interest rates are currently characterized by an extraordinary volatility: After the average interest rate for a 30-year loan rose to almost 6 percent in June, it has now fallen back to below 5 percent.
unrest in the market
As Institutional Money reports, mortgages aren’t the only type of bond experiencing high volatility these days. At the beginning of the year, Bank of America’s Move index for US Treasury bond volatility had risen to a level not seen since 2009, excluding the volatility triggered by the 2020 Corona outbreak. Apart from that, the risk premiums for corporate bonds have also experienced a significant increase. All in all, Dan Ivascyn believes that the US is headed for a comparatively mild but prolonged recession.
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