Zerodha's Nikhil Kamath on Thursday posited that interest rates in India can't go down if the ones in US stay up.
On X platform, Kamath said rates have risen and EMIs have doubled while salaries haven't and house prices have gone up a lot.
He said that what could likely happen next is that if the rates continue to stay up, "the slowdown in sales could be a logical precursor to price correction".
"The cost of capital is correlated globally, Indian rates can't go down if the US rates stay up," he said.
Wiht infographics from InvestyWise, a platform that makes financial education engaging, Kamath said that there is currently a deadlock in US housing market. Home prices in the US are at an all-time high right now, even as interest rates are rising because most of those homeowners secured a mortgage and refinanced at lower rates during FY21, which has made them less inclined to sell. As of December 31, 2022, more than 8 out of 10 mortgage holders have rates below 5%.
What makes this different from the 2008 Great Financial Crisis is that back then many people couldn't pay their mortgages. However, homeowners today are largely able to manage their mortgage payments, making them comfortable in keeping their homes, suggested data from US Fed.
Amid rising interest rates and homeowners holding onto their properties, there's been a significant drop in home sales, the lowest since October 2010. Existing home sales have fallen to an annualised rate of 3.96 million units in September 2023, the lowest since October 2010, showed data from National Association of Realtors.
The combined effect of rising interest rates and home prices has made buying a home significantly more expensive compared to 2020 and even with rising incomes, many households are struggling to qualify for a mortgage, showed the data.
High prices are turning off buyers, and homeowners with low mortgage rates don't want to sell. This has casued a deadlock in the US housing markets, making things tough for both potential buyers and current homeowners, said Kamath.
On Wednesday, the rate-setting Federal Open Market Committee again held their overnight interest rate target range steady at between 5.25% and 5.5%, the same level it's been since the end of July. Fed officials have kept alive the prospect they may raise rates again and Federal Reserve Chair Jerome Powell said decisions on the fed funds rate would be made "meeting by meeting".
But Powell also acknowledged in his press conference that when it comes to rate rises the central bank is probably "close to the end of the cycle".
The Fed is trying to reduce the size of its holdings to withdraw the liquidity it added during the coronavirus pandemic crisis, which caused the size of Fed holdings to more than double to a peak of just shy of $9 trillion last summer.