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High Mortgage Rates Hamper Housing Market Outlook
Justin L. Sylvan

The U.S. home market has struggled throughout 2023, burdened with 30-year fixed mortgage rates that passed 8% for the first time since 2000. The high rates have been one of the reasons that buyers have faced a historically unaffordable market.

Rates have retreated a bit since that peak, but what does the future hold for rates and how will they affect the home market going forward?

Mortgage Rates

A weaker-than-expected jobs report released on November 3, 2023, contributed to the decline of both 30-year and 15-year mortgage rates to the lowest figures in two months. The employment numbers may be due in part to widespread labor strikes and could rebound. If they do not, and the Federal Reserve discontinues its interest rate hikes, mortgages might become less costly. In the meantime, according to the Mortgage Bankers Association (MBA), buyer interest in adjustable-rate mortgages has been on the rise.

The high rates for fixed-rate mortgages are affecting more than just home sales; they also discourage refinancing. Buyers who secured rates in 2021 that were more than 50% lower than today’s rates see little incentive to refinance. The MBA says the number of refinance applications has dropped to the lowest level since January 2023.

On Oct. 26, 2023 — before the jobs report was released — the National Association of Realtors (NAR) predicted that the 30-year fixed rate will average 6.9% for 2023 and drop to 6.3% in 2024. Goldman Sachs expects the 30-year rate to land at 7.6%  for 2023 and finish at 7.1% for 2024. It sees rates decreasing further in 2025, to 6.6%.

Housing Costs

The S&P CoreLogic Case-Shiller. U.S. National Home Price Index has shown national home prices climbing steadily since January 2023. On November 3, 2023, the NAR reported that the nationwide median home price was around $425,000 in October. In late October 2023, Zillow estimated that new home buyers will need to spend about 13.5 years in their house before they can sell at a profit.

The persistent high prices are partly attributable to the low inventory of existing homes for sale (which, in turn, is attributable to high mortgage rates, as sellers with below-market mortgage rates do not want to give them up). NAR says that the number of homes for sale is almost 42% below typical numbers pre-COVID. Even though demand has been soft, the limited inventory has driven pricing up.

NAR expects the median price for 2023 to weigh in at $386,700 and inch up 0.7% to $389,500 in 2024. Goldman Sachs sees home prices rising by 1.9% next year, with prices up 2.8% for 2025 (with regional variations).

Signs of a potential tide change have snuck onto the radar, though. Redfin noted some significant downward movement on prices in October, finding that 7% of for-sale homes posted a price cut during the four weeks ending October 29, on average — a record number since Redfin begin tracking this data. Sellers may be coming around to the idea that the prices of two years ago are a thing of the past for many buyers, who have smaller budgets thanks to the high mortgage rates, as well as general inflation.

Related Read: Renting vs. Buying in Today’s Home Market

The Impact on Sales

It is probably no surprise that the experts are not particularly optimistic around the number of sales in the near term. Fannie Mae foresees ongoing weakness in sales, with existing home sales mired below 4 million units annualized for the next two quarters — and likely “subdued for some time.”

The NAR projects a 17.5% fall in existing homes sales for this year, or around 4.15 million units. It does, however, project a 13.5% increase to 4.71 million units in 2024.

If you have questions regarding changing mortgage rates, contact Justin Sylvan at [email protected] or 312.670.7444.

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