Homebuyers hoping for a better climate in 2023 may have to wait longer, as they now face the highest mortgage rates to start a new year since 2002.
However, analysts remain hopeful that today’s floating rates will stabilize in the coming months.
“While mortgage market activity has slowed significantly over the past year, inflationary pressures are easing and should lead to lower mortgage rates in 2023,” said Sam Cather, chief economist at Freddie Mac.
“Homebuyers are waiting for rates to come down significantly, and when they do, a strong job market and a large demographic tailwind of 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 Thursday.
At this time a year ago, the average rate 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 coming months,” said Nadia Evangelou, senior economist at the National Association of Realtors.
She admits that only a small fraction of potential buyers will be able to afford a home if these conditions remain.
“With qualifying income near the $100,000 threshold, 32% of all households and 15% of all renters can currently afford to buy a median-priced home.”
Mortgages with a fixed interest rate for 15 years
The average 15-year fixed rate rose to 5.73%, compared with the previous week’s rate of 5.68%.
At this time last year, it was 2.43%.
“Equity markets are reacting to the uncertainty brought about by the dichotomy between rising recession expectations and incoming economic data showing continued resilience,” writes George Ratiu, manager of economic research at Realtor.com.
“Real estate markets are firmly in the winter season, with high prices and rates creating a barrier for many buyers on the road to home ownership.”
Ratiu points out that a median-priced home buyer today could face a monthly payment that is 64% higher than last year.
“We may have to wait until the start of the spring shopping season to clarify the direction of the housing market this year, especially as both buyers and sellers pull out of the market.”
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Pending home sales are falling
Pending home sales fell 32% in December, compared to the same period last year, Redfin reports. Sales fell to their lowest level since at least 2015.
“The real estate market disappeared in late 2022 due to mortgage rates at 6% and above, a looming recession, record low new listings, extreme winter weather and the typical holiday slowdown,” writes Redfin data reporter Dana Anderson.
The real estate giant points to the most drastic declines in “pandemic homebuying hotspots” in Las Vegas, Phoenix and Austin, where pending sales have fallen by more than 50%.
“Two categories of buyers are just starting their search: first-timers who hope prices and competition will be more manageable than they have been in years, and returning buyers who took a break after losing out on multiple homes during the pandemic bidding – war madness,” says Seattle-based agent Shoshana Godwin.
Godwin believes buyers may be able to find homes at slightly lower prices now compared to last year, but the market could become more competitive in the coming months.
“I expect new listings to remain sparse as homeowners cling to low interest rates while a pool of determined buyers circle the few homes that are available.”
Mortgage applications have hit their lowest level since the 90s
Mortgage applications sank 13.2% from two weeks earlier, according to the Mortgage Bankers Association. (Data was not released last week as 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, mortgage applications have continued to decline over the past two weeks to the lowest level since 1996,” says Joel Kahn , vice president and deputy chief economist at the Mortgage Bankers Association.
Refinancing activity is also down 16.3% from two weeks ago — and is 87% lower than the same time last year.
“Even as home price growth slows in many parts of the country, elevated mortgage rates continue to weigh on affordability and keep potential homebuyers out of the market,” Kahn says.
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