Last year, under the Fed's loose policy, mortgage rates fell and US demand for home purchases was strong; however, as the Fed began its interest rate hike cycle and mortgage rates soared, the US real estate boom has begun.

According to reports, Lawrence Yun, chief economist of the NAR, said that now the boom is beginning to ease and home sales are returning to pre-epidemic levels. With mortgage rates at 5%, he expects home sales to fall by 10% in 2022 from last year.

With interest rates rising now, will the economy contract in the future?

So what does the sharp rise in mortgage rates mean for the economy?First, mortgage costs will undoubtedly pose a challenge to potential homebuyers who are already facing soaring house prices. Second, higher interest rates will also affect the demand for mortgage loans. Second, rising interest rates will make it harder for homeowners to save money through refinancing. All these effects will cool the activity of the US housing market.

In addition, according to the chart below, ISM manufacturing PMI (a key measure of economic strength) has always been closely related to changes in mortgage costs. These figures suggest that when the cost of mortgage services rises rapidly, it tends to herald a sharp slowdown in economic activity.

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The sharp rise in home loan interest rates will have multiple effects on the US real estate sector, which will undoubtedly make it more difficult for ordinary residents who want to buy their first suite.

At the same time, it will be harder for homeowners who already own property to replace it, because it would mean giving up lower interest rates and having to bear higher new interest rates. In addition, soaring interest rates on home loans will also encourage buyers to choose to buy smaller homes in areas where prices are lower.

According to media reports, mortgage applications in the United States fell last week, a week after buyers were eager to lock in interest rates before they rose, and demand rose slightly.

MBA said its composite index of purchases, which measures all mortgage applications to buy a single family home, fell 3.0 per cent on a quarterly basis to 254.0, while the refinancing index fell 8 per cent. This will also affect the building demand to a certain extent.Therefore, in addition to U. S. real estate, related plates such as building materials, decoration and other plates will also be affected to a certain extent.