With the real estate market “phasing out,” 2023 is off to its worst start in decades — but that’s why analysts are dreaming of a mild spring
Homebuyers hoping for a better climate in 2023 will have to wait longer as they now face the highest mortgage rates since 2002 to start a new year.
However, analysts remain hopeful that today’s volatile prices will stabilize in the coming months.
“While activity in the mortgage market has slowed significantly over the last year, inflationary pressures are easing and should lead to lower mortgage rates in 2023,” said Sam Khater, Freddie Mac’s chief economist.
“Homebuyers are waiting for rates to drop more significantly, and when they do, a strong labor market and a large demographic tailwind from millennial renters will support the buying market.”
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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 on Thursday.
A year ago, the average rate this time was just 3.22%.
“Although rates more than doubled a year ago, rates are likely to stabilize below 6% in 2023 as inflation continues to slow in the months ahead,” said Nadia Evangelou, senior economist for the National Association of Realtors.
She acknowledges that if these conditions remain in place, only a fraction of potential buyers will be able to afford a home.
“With a qualifying income near the $100,000 threshold, 32% of households and 15% of renters can currently afford to buy the house at the median price.”
15-year fixed-rate mortgages
The average 15-year fixed rate rose to 5.73% from the previous week’s rate of 5.68%.
This time last year it was 2.43%.
“Capital markets are reacting to the uncertainty created by the dichotomy between rising recession expectations and incoming economic data showing continued resilience,” writes George Ratiu, manager of economic research at Realtor.com.
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“Real estate markets are firmly in the winter season, with high prices and rates posing a barrier to home ownership for many buyers.”
Ratiu points out that the buyer of a home at the average price 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 property markets this year, especially as both buyers and sellers are withdrawing from the market.”
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Pending home sales are falling
Pending home sales fell 32% in the month of December compared to the same period last year, Redfin reports. Sales fell to their lowest level since at least 2015.
“The housing market petered out at the end of 2022 on the back of mortgage rates above 6%, a looming recession, record low new registrations, extreme winter weather and the typical holiday doldrums,” writes Redfin data writer Dana Anderson.
The real estate giant points to the most drastic declines in “pandemic homebuying hotspots” Las Vegas, Phoenix and Austin, where pending sales each fell more than 50%.
“Two categories of buyers are just beginning their search: first-time buyers hoping prices and competition are more manageable than they have been in recent years, and returning buyers who have taken a break after losing several homes during the pandemic auction. War frenzy,” says Seattle Redfin agent Shoshana Godwin.
Godwin believes buyers may now be able to find homes at slightly lower prices compared to last year, but the market could become more competitive in the coming months.
“I expect new listings to remain scarce as homeowners hold on to low interest rates while the pool of determined buyers circles the few homes available.”
Mortgage applications are at their lowest since the 1990s
Mortgage applications fell 13.2% from two weeks earlier, according to the Mortgage Bankers Association. (The data was not released last week as the MBA’s offices were closed for the holiday.)
“Year-end is typically a slower time for the housing market and with mortgage rates still well above 6% and the looming recession, mortgage applications have continued to fall over the last two weeks to their lowest level since 1996. says Joel Kan, vice president and associate chief economist at the Mortgage Bankers Association.
Funding activity was also down 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, high mortgage rates continue to weigh on affordability and keep potential homebuyers out of the market,” Kan says.
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This article is informational only and should not be construed as advice. It is provided without any guarantee.