With the housing market ‘fizzled out,’ 2023 is off to the worst start in decades — but here’s why analysts are dreaming of a mild spring – Yahoo Finance
With the housing market ‘fizzled out,’ 2023 is off to the worst start in decades — but here’s why analysts are dreaming of a mild spring
Homebuyers hoping for a better climate in 2023 have longer to wait, as they now face the highest mortgage rates to start a new year since 2002.
However, analysts remain hopeful that today’s volatile rates will stabilize in the coming months.
“While mortgage market activity has significantly shrunk over the last year, inflationary pressures are easing and should lead to lower mortgage rates in 2023,” says Sam Khater, Freddie Mac’s chief economist.
“Homebuyers are waiting for rates to decrease more significantly, and when they do, a strong job market and a large demographic tailwind of millennial renters will provide support to the purchase market.”
30-year fixed-rate mortgages
The average 30-year fixed-rate is 6.48%, up from last week when the average rate was 6.42%, Freddie Mac reported Thursday.
This time a year ago, the average rate was just 3.22%.
“Although rates are more than double a year ago, rates will likely stabilize below 6% in 2023 as inflation will continue to slow down in the following months,” says Nadia Evangelou, senior economist for the National Association of Realtors.
She acknowledges that only a fraction of potential buyers will be able to afford a home if these conditions linger.
“With the qualifying income near the $100,000 threshold, 32% of all households and 15% of all renters can currently afford to buy the median-priced home.”
15-year fixed-rate mortgages
The average 15-year fixed rate moved up to 5.73%, compared to the previous week’s rate of 5.68%.
This time last year, it was 2.43%.
“Capital markets are reacting to the uncertainty brought about by the dichotomy between mounting recession expectations and incoming economic data which show continued resilience,” writes George Ratiu, manager of economic research at Realtor.com.
“Real estate markets are firmly in the winter season, with high prices and rates creating a barrier for many buyers on the road to homeownership.”
Ratiu points out that the buyer of a median-priced home today could be facing a monthly payment that’s 64% higher than last year.
“We may have to wait until the start of the spring shopping season for more clarity on the direction of housing markets this year, especially as both buyers and sellers are pulling back from the marketplace.”
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Pending home sales plummet
Pending home sales plunged 32% in the month of December, compared to the same period last year, reports Redfin. Sales dropped to their lowest level since at least 2015.
“The housing market fizzled out at the end of 2022 due to 6%-plus mortgage rates, a looming recession, record-low new listings, extreme winter weather and the typical holiday slowdown,” writes Redfin data journalist Dana Anderson.
The real estate giant points to the most drastic declines in “pandemic homebuying hotspots” Las Vegas, Phoenix and Austin, which each saw pending sales drop more than 50%.
“Two categories of buyers are starting their search right now: First-timers hoping prices and competition are more manageable than they have been over the last few years, and returning buyers who took a break after losing out on multiple homes during the pandemic bidding-war frenzy,” says Seattle Redfin agent Shoshana Godwin.
Godwin believes that buyers may now be able to find homes for slightly lower prices compared to last year, but the market could become more competitive over the coming months.
“I expect new listings to remain scarce as homeowners hold on to low interest rates while the pool of determined buyers circle the few homes that are available.”
Mortgage applications hit lowest level since the ’90s
Mortgage applications sank 13.2% from two weeks prior, according to the Mortgage Bankers Association. (Data wasn’t released last week since the MBA’s offices were closed for the holidays.)
“The end of the year is typically a slower time for the housing market, and with mortgage rates still well above 6% and the threat of a recession looming, mortgage applications continued to decline over the past two weeks to the lowest level since 1996,” says Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association.
Refinance activity also declined 16.3% from two weeks ago — and is 87% lower than at the same time last year.
“Even as home-price growth slows in many parts of the country, elevated mortgage rates continue to put a strain on affordability and are keeping prospective homebuyers out of the market,” Kan says.
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