As of mid-2023, mortgage rates are still elevated compared to the last decade. As of Friday, the average 30-year fixed rate was 7.04%.
Interest rates are unlikely to fall this year; Selma Hepp, chief economist at CoreLogic, expects mortgage rates to end the year at 6.7%. That’s an increase from its April forecast, which saw mortgage rates ending the year near 5.8%.
Inflation remains high, so the Federal Reserve is not expected to cut interest rates any time soon. In August, the consumer price index, which measures changes in the price of goods and services over time, rose 0.6% from the previous month, the biggest increase this year. The CPI beat analysts’ expectations of 3.6% year-on-year, after rising 3.7%.
On the bright side, she doesn’t expect further rate hikes, but says the Fed could stay at higher rates for longer.
“It will provide some certainty in the mortgage markets, which means the spread between mortgage rates and the increased 10-year Treasury note will shrink, which will lower mortgage rates,” Hepp said. “And I think with lower mortgage rates, there will be a lot of pent-up demand.”
Despite the current lack of affordability, property prices are still rising. But it’s not because of demand, she said. This year, much of the appreciation has been driven by low inventory levels, although increased mortgage rates are helping to temper that increase.
“In June we forecast house prices would rise 6.6% through December this year,” Hepp said. “In July, this forecast was revised downwards to a 6% year-on-year increase in home prices. So that’s a 60 basis point drop in guidance due to higher mortgage rates.”
Some U.S. metropolitan areas are expected to see larger increases in home prices next year. The list below shows the top 20 metro areas that are expected to see an increase in prices between now and July 2024.
The list is based on CoreLogic’s Home Price Index, which includes data from public real estate records and more than 45 years of repeat sales transactions to identify single-family home price trends. Forecasts are based on several metrics, including property prices, unemployment rates, real per capita disposable income and population growth.
In most of those areas, home prices are down from last year’s peak, Hepp said. Many were already seeing declines last year and now they are seeing prices rise as people come back into the market and start pushing prices back up, she added.