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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.
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