Introduction

US house prices have been tipped for a major deflation with Donald Trump’s former economic advisor warning the American economy lies in a “precarious position”.

Concerns About Mortgage Rates

• Steve Moore warned that if mortgage rates increase further, it will become much harder for Americans to buy a house and that individuals will be paying a lot more money over the life of their mortgages.
• Average rates on a five-year adjustable mortgage jumped to their highest level in 12 years last week while fixed-rate mortgages also climbed.
• Speaking to GB News, Moore said he was “worried” about the housing market and warned that the current high mortgage rates would deflate house prices.

Inflation and Rising Cost of Living

• Coupled with the rising cost of living and inflation, which rose by 3.7 per cent according to figures released by the Bureau of Labor Statistics today (13 September), prices for individual Americans are at risk of spiralling out of control.
• Moore expressed concerns about the inflation situation, stating that energy prices have risen significantly, which affects the price of everything.
• He predicted that the inflation rate could reach four to five per cent, well above the target inflation rate of two per cent.

Impact on Homeowners and the Economy

• Moore highlighted that higher mortgage rates depreciate prices and make it harder for people to buy a house.
• He estimated that the average homeowner buying a home with higher interest rates would pay $150,000 more over the life of the mortgage.
• If US mortgage rates remain above seven per cent, it would mark the most painful run for homeowners since January 2002.
• Moore also mentioned the possibility of interest rate hikes, which would further increase the cost of repayments.

Conclusion

Moore expressed concern about the housing market and the potential for a real deflation in prices. He emphasized the negative impact of inflation on American families, particularly those with lower incomes. These economic factors pose challenges for the US economy and could affect the reelection prospects of President Biden.