The road to home ownership has been difficult for many Americans in the last few months. Sticky inflation, soaring rates, which in turn are translating into ballooning mortgage rates, and short supply have left many would-be homebuyers on the sidelines.
Housing Market 2023: Prices Are Now So High That Banks Are Losing Money on Mortgages
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Yet, several experts agree that the second half of the year might be a bit easier for homebuyers, as inflation is cooling down and the Federal Reserve is expected to put an end to its hawkish rate campaign. However, some other factors might still put pressure on the housing market, such as short supply and continued increasing prices.
“The housing market is like a car being driven by multiple factors. High mortgage rates and elevated home prices are the gas pedal, pushing the market forward,” said James Allen CPA, CFP, founder of Billpin.com. “But the brakes are being applied by constrained housing inventory and fears of ongoing inflation. The steering wheel is in the hands of the Federal Reserve, guiding the direction with interest rate decisions. And in the backseat, you have potential homebuyers waiting to see where this ride is going to take them.”
See why the housing market is reversing.
What Will Happen to Mortgage Rates?
Long gone are the days of mortgage rates at 3%, 4% and 5%. The current average 30-year fixed mortgage interest rate is 7.24%, as of July 21, according to Bankrate. With the Federal Reserve expected to hike rates once again at its next Federal Open Market Committee (FOMC) on July 25-26, mortgage rates are likely to increase as well.
Yet, Danielle Hale, chief economist at Realtor.com, explained that the closer we get to the end of the Fed’s tightening cycle, the more likely that rates will decline.
“We anticipate that the Fed will finish hiking short-term rates this year and keep rates relatively high into 2024,” Hale said. “At this stage in the monetary policy cycle, the Fed is more data dependent than usual. While inflation eased sharply in the most recent data, our expectations are predicated on continued improvement in the pace of price growth. With this policy and economic background, we expect mortgage rates to begin to ease gradually in the second half of 2023, heading back toward 6% as we near the end of the year.”
Mortgage Interest Rate Forecast for 2023: When Will Rates Go Down?
Will the Market Continue To Be Starved for Inventory?
Homeowners have been holding on to their low mortgage rates, and more than 80% of home shoppers looking to buy and sell feel locked in to their current rates, according to a Realtor.com report. Buyers are also seeing the few available homes on the market. Realtor.com said it expects to see this trend continue as mortgage rates remain elevated for the time being.
What’s more alarming is that so far this year only 1% of the nation’s homes have changed hands, meaning homebuyers have 28% fewer homes to choose from than they did before the pandemic upended the US housing market, according to a Redfin report.
“With mortgage rates hovering at 7%, no one is moving. If rates continue to go upward, we will continue to see a lack of available homes on the market,” said Kurt Carlton, co-founder and president of New Western. “If interest rates start to stabilize, home prices should continue upward, and we may see more inventory.”
Which Cities Will See a Boom and Which Will Decline?
Realtor.com’s Hale said that, so far in 2023, markets in the South and parts of the West have seen weaker home price growth; in some areas, prices have declined.
“These areas saw more frenzied activity when interest rates dipped, and prices in these markets are adjusting to get back in line with long-term trends,” she said, adding that areas such as Austin, Texas; Raleigh-Cary, NC; and Phoenix are seeing homeowners price homes for sale below what was typical of asking prices one year ago.
On the flip side, Hale noted that Northeastern markets such as New York City and Boston plus affordable areas in the Midwest like Kansas City, Milwaukee and Cincinnati are seeing home listing prices continue to climb as sellers in these areas have high expectations of the market.
Hale said, “As noted in several recent Realtor.com reports … economic conditions on the ground in the Northeast and Midwest remain relatively good, and this is evident in the housing market trends we observe.”
Where Can We Expect Prices To Rise and Fall?
When it comes to the movement of prices, there’s a mixed bag, according to Adam Taggart, CEO and founder of Wealthion.
“On one hand, we can anticipate affordable prices to keep climbing, as housing costs have been a notable driver of inflation, which means rates for the average buyer might still be out of reach until these inflationary pressures ease,” he said.
On the other hand, he noted that we’re likely to witness a decline in prices in the near future.
“We’re expecting a significant increase in inventory during the second half of this year,” Taggart said. “The catch here is that there seems to be limited demand from consumers. Even with this influx of available properties, many potential buyers just won’t have the financial means to afford them, which could lead to a fall in prices.”
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This article originally appeared on GOBankingRates.com: Housing Market 2023: What Can We Expect for the Second Half of This Year?