Homebuyers hoping for better weather 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 declined significantly over the past year, inflationary pressures are easing and should lead to lower mortgage rates in 2023,” said Sam Khater, chief economist at Freddie Mac.
“Homebuyers are waiting for rates to come down more significantly, and when they do, a strong job market and a significant demographic tailwind of millennial renters will support the buying 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.
A year ago, this time, the average rate was only 3.22%.
“Although rates more than doubled a year ago, rates will likely stabilize below 6% in 2023 as inflation continues to moderate in the coming months,” says Nadia Evangelou, senior economist for the National Association of Realtors.
She recognizes that only a fraction of potential buyers will be able to afford a home if these conditions persist.
“With qualifying income near the $100,000 threshold, 32% of all households and 15% of all renters can currently afford to buy the home at the median price.”
15-year fixed rate mortgages
The average 15-year fixed rate rose to 5.73% from 5.68% the previous week.
At this time last year, it was 2.43%.
“Capital markets are reacting to the uncertainty caused by the dichotomy between growing recession expectations and incoming economic data that shows continued resilience,” writes George Ratiu, head of economic research at Realtor.com.
“Real estate markets are firmly into the winter season, with high prices and rates creating a barrier for many buyers on the road to home ownership.”
Ratiu points out that today, the buyer of a median-priced home could face a monthly payment 64% higher than last year.
“We may have to wait until the start of the spring buying season for more clarity on the direction of housing markets this year, especially as buyers and sellers retreat from the market.”
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Waiting for the drop in home sales
Pending home sales fell 32% in December compared to the same period last year, reports Redfin. Sales fell to their lowest level since at least 2015.
“The housing market collapsed at the end of 2022 due to mortgage rates above 6%, a looming recession, record new listings, extreme winter weather and the typical holiday downturn,” writes the reporter. Redfin data manager 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 fall by more than 50%.
“Two categories of buyers are beginning their search right now: first-timers who are hoping that prices and competition are more manageable than they have been in the past few years, and returning buyers who have taken a break. after losing multiple homes during the pandemic auction-war frenzy,” says Seattle Redfin agent Shoshana Godwin.
Godwin thinks buyers may now find homes at slightly lower prices than last year, but the market could become more competitive in the coming months.
“I expect new listings to remain scarce as homeowners keep interest rates low while the pool of determined buyers surrounds the few available homes.”
Mortgage applications hit their lowest level 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 because the MBA 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 have continued to decline over the two weeks to their lowest level since 1996,” said Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association.
Refinancing activity was also down 16.3% from two weeks ago – and is 87% lower than the same period last year.
“Even as home price growth is slowing in many parts of the country, high mortgage rates continue to strain affordability and keep potential buyers out of the market,” Kan said.
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