Higher mortgage rates have put pressure on homebuyer incomes in 2022, putting some potential sellers on the sidelines. The new year may bring some relief through lower prices and weaker home prices, but don’t expect a surge in sales.
According to the National Association of Realtors, existing home sales fell for the 10th straight month in November as high mortgage rates combined with still high prices kept some buyers away. Pending home sales, the number of contract signings that precede the closing of a home sale, also fell, according to the trade group.
The data stands in contrast to the housing frenzy at this time last year. Pre-owned homes sold at a seasonally adjusted annual rate of 4.09 million in November, the lowest figure since the Covid-driven housing market shutdown in early 2020.
Comparing the most recent month’s home sales to the same month last year shows the magnitude of the turnaround. Existing homes sold at a rate of 6.33 million in November 2021, which is nearly 35% higher than the same month this year.
While bidding wars are still a factor, they are less prevalent than before in the pandemic.
data shows. About 40% of Redfin’s bids faced competition in November, the brokerage said last week, down from the roughly two-thirds of bids that saw bidding wars in November 2021.
House prices also lost steam. Data from the S&P CoreLogic Case-Shiller Home Price Indices released earlier this week showed that prices in the nation’s 20 largest metropolitan areas fell in October.
Less comprehensive measures of home price changes, such as the median existing home sale price, also retreated from an all-time high earlier this summer, falling 10.4% in November. On an annual basis, prices were 3.5% higher than a year ago – the slowest increase since June 2020.
Higher mortgage rates, which have been rising for much of the year as market participants implement tighter monetary policy, have cooled the hot pandemic housing market quickly. Industry forecasters expect total home sales to be around 5.8 million in 2022, down 16% from 2021.
National Association of Realtors and Mortgage Bankers Association.
The slide will continue next year: the four forecasters on average expect sales to fall by an average of an additional 13% in 2023, to a total of five million sales. Mortgage rates are only one part of the equation.
“Despite the recent decline in mortgage rates, we expect housing to continue to slow,” Fannie Mae Chief Economist Doug Duncan said in a statement accompanying the government-backed institution’s monthly forecast. In 2023, it will decrease to 4.6 million. “Home purchases remain out of reach for many as prices have soared over the past year and house prices remain high compared to pre-pandemic levels, although they have certainly slowed and fallen in some places.”
Forecasters expect average mortgage rates to retreat through 2023, but rates will still be higher than pre-pandemic lows. On average, forecasters expect mortgage rates to hover around 6.4% in the first quarter of 2023 before easing to 5.7% in the fourth quarter. The 30-year mortgage rate averaged 6.42% as of Dec. 29, up from 6.27% last week, according to data released today by Freddie Mac.
Estimates of home prices next year vary because different organizations base their forecasts on different indexes or data points. Despite changes in methodology, many forecasts predict that prices in 2023 will be flat or even lower than in 2022.
which predicts fluctuations in typical home values, predicts a 0.7% decline in values nationally from November 2022 to November 2023, according to its most recent forecast. According to Zillow, values in eight of the nation’s 10 largest metropolitan areas are expected to be lower than they were this November, with only Atlanta and Miami home prices projected to be higher through the end of November 2023.
Because prices are rising rapidly, such a decline will not erase the home value gains experienced during the pandemic. At $357,544, Zillow’s typical home value this November is nearly 44% higher than in November 2019.
The Mortgage Bankers Association’s December forecast calls for annual home price growth, as measured by the FHFA U.S. Home Price Index, to remain positive through most of 2023 before slowing to 0.6% year over year. The trade group expects the recession to continue through most of 2024.
Economists Mike Fratantoni and Joel Kahn wrote in a statement in mid-December: “Inventories of new homes are rising while demand remains fairly weak, and more builders are offering price discounts and other incentives to move properties.” They added that a low inventory of existing homes and a lack of difficult sales would “prevent a deeper decline in national home prices,” but said they expected more negative annual price changes than they had previously forecast.
Email Shaina Mishkin at firstname.lastname@example.org