There is no phrase that will define the housing market in 2023 more than “mortgage rate lock-in effect.” This phenomenon has stagnated the industry and put downward pressure on everything from inventory levels to home sales.
Freddie said 85% of pandemic-era mortgage holders were locked in mortgage rates below 5% to prevent homeowners from selling their homes and buying another home at higher rates. The interest rate reached 7.79% in the week ending October 26th. Mac.
But will things be different this year?
There are signs that market conditions are improving.
Mortgage rates have fallen steadily over the past seven weeks, averaging 6.61% for a 30-year fixed mortgage in the week ending December 28th.
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Lower mortgage rates boosted existing home sales in November, increasing 0.8% from October and marking the fifth consecutive month of decline, according to the National Association of Realtors.
Compared to the same period last year, sales decreased by 7.3% (down from 4.12 million units in November 2022).
“Mortgage rates have fallen sharply in recent weeks, so we expect a significant turnaround,” said Lawrence Yun, chief economist at the National Association of Realtors.
Housing shortage will continue
One thing most experts don’t expect is that the shortage of homes for sale will disappear.
“Nevertheless, in 2024 there will be a slight increase in the construction of single-family homes, and a large number of apartment buildings under construction, the majority of which will be rental housing, will be completed, giving households even more choice. ,” said Daniel Hale, chief economist at Realtor.com.
Even if a long-term supply shortage doesn’t cause prices to fall significantly, the addition of new homes and apartments to the inventory will likely limit the rise in home and rental prices.
Odeta Cusi, deputy chief economist at First American, said today’s severe supply shortages will be difficult to reverse.
“Single-family home starts have increased steadily through 2023, but it will take years to accelerate new home construction to close the supply gap caused by more than a decade of under-construction. ” she says.
Home price growth varies by market
Against this backdrop, U.S. sales in 2024 are expected to increase only slightly from 2023, which was a long-term low. Hale said real estate activity varies widely by market, with some top growth areas expected to see double-digit increases.
Combined sales and price trends are expected to be highest in the two major market groups. The first is affordable markets in the Midwest and Northeast, such as Toledo, Ohio, and Rochester, New York, Hale said. The second set is Southern California, where lower mortgage rates could help the region recover from a particularly weak 2023.
The median existing home price for all home types in November was $387,600, up 4% from November 2022 ($372,700). Prices rose in all four of his regions of the United States.
“Housing prices continue to rise,” Yun said. “Only a dramatic increase in supply can limit price increases.”
Mortgage interest rates and affordability
Most experts expect average 30-year mortgage rates to stay in the 6.1% to 7% range in the first quarter, then decline throughout the year.
“Financial markets increasingly believe the country can avoid recession in 2024, with mortgage rates likely to remain well above their pandemic-era record lows,” said Darryl Fairweather, chief economist at Redfin. ” he said. “Mortgage rates will fall to approximately 6.6% by the end of 2024. The gradual decline in interest rates, combined with the slight decline in prices, will provide much-needed relief to homebuyers.”
Jeff Taylor, founder and managing director of Emfasys Digital Risk, said the estimated range for a 30-year fixed rate would be in the mid-6% range as election year volatility causes mortgage rates to spike. That’s what it means.
At 7.125% interest rates and current median home prices, a new home and an existing home would require a household income of $111,000 and $107,000, respectively, a 5% decline, Taylor said.
If mortgage rates fell 1% to 6.125% in 2024, as predicted by the Federal Housing Finance Agency, and home prices rose just 4%, it would cost $105,000 to buy a new home and an existing home. It would require $99,000, a 5% decline.
construction of new house
Robert Dietz, chief economist at the National Association of Home Builders, expects single-family housing starts to rise in 2024 as mortgage rates decline and the housing deficit continues. This year will be the first year that the number will increase after the decline. In 2022 and 2023.
“Due to low existing inventory, new construction has increased from historically only 10 to 15 percent to about one-third of the total single-family home inventory in recent months,” Dietz said.
Construction of multifamily housing will be significantly reduced. Financing conditions are extremely tight, with about 1 million apartments under construction, the highest since 1973.
The level of renovation activity in 2024 will be roughly flat compared to 2023. The housing stock is aging and in need of reinvestment (the typical home in the United States is nearly 40 years old).
Swapna Venugopal Ramaswamy is USA TODAY’s housing and economics correspondent. You can follow her on Twitter @SwapnaVenugopal and sign up for her Daily Money newsletter here.