US Housing Market Facing Challenges Amid Rising Mortgage Rates
By According to a survey of housing experts conducted by Zillow®, it is expected that home prices will reach a low point in 2023 before returning to a more typical rate of growth. According to economists from the Dallas Federal Reserve, there are indications that the housing markets of the United States and Germany are in trouble, and this could be a potential risk to the worldwide economy due to the magnitude of these two countries' economies and the potential for financial contagion.[0] The bank reported in a note on Thursday that by late 2024, home prices in Austin, Seattle, Phoenix, and San Francisco will have declined by 19%, 12%, 16%, and 15%, respectively, compared to late-2022.
So far, the housing market which is sensitive to interest rates has felt the most impact from stricter monetary policy.[1] Mortgage rates had been steadily decreasing from their November peak of 7.08%, but have recently started to increase again due to concerns about potential interest rate hikes.[2] Data from mortgage lender Freddie Mac reveals that the average rate for a 30-year fixed mortgage rose to 6.5% this week.[3]
Goldman Sachs recently informed their clients that they anticipate a national drop of 6.1% in home prices this year.[4] Although a modest housing correction remains the baseline scenario, the authors warned that more hawkish monetary policy could trigger a steeper correction.[5]
Rising mortgage rates have an impact on demand, as the additional expense of interest can add hundreds of dollars monthly to home buyers' mortgage payments.[6] The sale of homes has dropped drastically, with the exception of newly-constructed homes where developers have the financial strength to purchase points on a mortgage, thus reducing the rate for purchasers.[7]
According to the Wall Street Journal, the increasing mortgage rates have had a negative effect on the U.S. housing market, leading to a decline in potential buyers ahead of the critical spring selling period.[8] Zillow reported that sales of existing homes are expected to decline from 5 million in 2022 to 2.3 million this year.[9] To meet the demand for inventory, the construction of new homes may grow – with home builders providing buyers financial incentives to help them address the affordability issues.[10]
Since late January, mortgage applications for home purchases have taken a dive each week and have now reached a new low that hasn't been seen since 1992.[11] The volume of home sales can often be predicted by the number of mortgage applications to purchase a home.[11]
0. “Threat of global housing slide looms amid rising rates” Federal Reserve Bank of Dallas, 28 Feb. 2023, https://www.dallasfed.org/research/economics/2023/0228
1. “US home prices could plunge 20% amid risk of ‘deep' housing slide, Fed economist warns” Fox Business, 2 Mar. 2023, https://www.foxbusiness.com/economy/us-home-prices-could-plunge-risk-deep-housing-slide-fed-economist-warns
2. “Home prices will sink in these cities that were once red hot as supply starts to overwhelm demand” Business Insider Africa, 26 Feb. 2023, https://africa.businessinsider.com/markets/home-prices-will-sink-in-these-cities-that-were-once-red-hot-as-supply-starts-to/8erkws0
3. “Housing slump will deepen as interest rates extend rise: Redfin, Zillow” Markets Insider, 1 Mar. 2023, https://markets.businessinsider.com/news/stocks/us-housing-slump-interest-rates-inflation-2008-crash-redfin-zillow-2023-2
4. “Home prices to drop in seven US cities, including one in FL” Islander News.com, 27 Feb. 2023, https://www.islandernews.com/local/business/home-prices-to-drop-in-seven-us-cities-including-one-in-fl/article_5c2f448c-b694-11ed-8dc8-5f47a87c4a07.html
5. “Dallas Fed: Housing market is only passing through a modest correction, but ‘tighter than expected’ monetary policy could trigger a ‘more severe’ price drop” Fortune, 2 Mar. 2023, https://fortune.com/2023/03/02/dallas-fed-housing-market-modest-correction-monetary-policy-severe-price-drop
6. “Is the Housing Market About To Hit Rock Bottom? Here’s What That Means, and Why We May Be Here for a While” Realtor.com News, 3 Mar. 2023, https://www.realtor.com/news/trends/is-the-housing-market-about-to-hit-rock-bottom-heres-what-that-means-and-why-we-may-be-here-for-a-while/
7. “‘The risk of a deep housing slide persists': Dallas Fed says downturn in U.S. and German housing markets could affect …” Morningstar, 1 Mar. 2023, https://www.morningstar.com/news/marketwatch/20230301439/the-risk-of-a-deep-housing-slide-persists-dallas-fed-says-downturn-in-us-and-german-housing-markets-could-affect-the-rest-of-the-world
8. “Rising Mortgage Rates Are Putting a Chill on the Housing Market” Floor Focus, 6 Mar. 2023, https://www.floordaily.net/flooring-news/rising-mortgage-rates-are-putting-a-chill-on-the-housing-market
9. “Expert panel expects home prices will grow at a steady pace starting in 2024 – Zillow Gr (NASDAQ:Z), Zill” Benzinga, 2 Mar. 2023, https://www.benzinga.com/pressreleases/23/03/n31165856/expert-panel-expects-home-prices-will-grow-at-a-steady-pace-starting-in-2024
10. “Home Prices Will ‘Bottom Out' in 2023, According to Experts” GOBankingRates, 3 Mar. 2023, https://www.gobankingrates.com/investing/real-estate/home-prices-will-bottom-out-according-to-experts/
11. “Mortgage Applications to Purchase a Home Plunged to New 28-Year Low” Seeking Alpha, 2 Mar. 2023, https://seekingalpha.com/article/4583717-recent-housing-hype-hoopla-fizzled-mortgage-applications-to-purchase-home-plunged
