“While some optimism seems to have crept into the housing sector, this represents an uptick from very low levels of activity and is at risk of falling again if rates rebound,” wrote economists in Fannie Mae in their latest report.
By early 2023, a combination of factors had come together to create a collapsed housing market feel a little warm. For starters, the first months of the year often see more seasonal demand. That increase in demand this year was helped by the average 30-year fixed mortgage rate is sliding from 7.37% in early November to 5.99% in early February, and the fact that homebuilders are now offering great value. buy mortgage rate.
However, we are starting to see the backdrop of the housing market sour again. In fact, over the past three weeks the average 30-year fixed mortgage rate has risen from 5.99% back up to 6.88%.
that change in mortgage rates That’s in line with seasonally adjusted mortgage purchase applications (see chart below) which fell this week to their lowest level since 1995.
For the entire year 2023, Fannie Mae it is expected that the volumes of new and existing home sales will fall by 5.4% and 19.2%, respectively. That comes after last year’s 16.5% decline in new home sales and the 17.9% decline in existing home sales.
There are two main reasons why Fannie Mae doesn’t think housing will recover in 2023.
First, Fannie Mae thinks high mortgage rates will continue to keep many buyers on the sidelines.
Second, Fannie Mae economists think home listings will remain suppressed because few sellers are eager to trade their fixed 3% mortgage rate for an additional 6% mortgage rate. . That lack of inventory, of course, will make it difficult for home sales levels to rise.
“Continued constraints on affordability, the “lock-in” effect that creates a financial disincentive for many existing homeowners with mortgages to move, and tight inventories is expected to continue to limit home sales… In addition, the 10 year Treasury have increased significantly in recent weeks, suggesting that mortgage rates are likely to start again,” Fannie Mae economists wrote in their latest report.
While Fannie Mae waits the inventory level to remain restrictedit says that tight inventory alone is not enough to stop the home price correction.
follow the 2.5% decline in US home prices in the second half of 2022Fannie Mae expects US home prices to fall another 4.2% in 2023. Then in 2024, Fannie Mae economists expect US home prices to fall another 2.3%.
If Fannie Mae is right, this housing collapse will see the national housing market go through a mild home price correction—not a full house price explosion. After all, if these price reductions happen, national house prices will end in 2024 increasing by 29% March 2020 price level.
Remember, whenever a group like Fannie Mae talks about US home prices, it’s a national aggregate. At the regional level, price movements vary.
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