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Here's where mortgage rates and home prices may be headed in 2023
01:41 - Source: CNN Business
Washington, DC CNN —
Home buyers have proved to be mortgage rate sensitive, with home sales over the past year tanking as rates have surged, and improving during periods when rates have ticked down. The past year has shown that as monthly mortgage payments decline, demand goes up.
But a new study shows that 5.5% may be the magic mortgage rate that gets things moving in the market, according to analysis from John Burns Research and Consulting, which specializes in the housing industry.
Mortgage rates more than doubled over the past year, reaching as high as 7.08% in November, according to Freddie Mac’s average weekly mortgage rate for a 30-year fixed rate loan. Since then the rate has declined by almost a full point, and currently sits at 6.27%.
Many homeowners who bought or refinanced into ultra-low mortgage rates during the past few years are reluctant to sell and become a home buyer at a much higher rate. This is keeping inventory historically low.
Over half of people in a survey of 1,300 homeowners and renters with household incomes of $50,000 said that now is not a good time to buy a home. Only 22% reported it being a good time to buy.
The survey found that 5.5% mortgage rates seem to be the tipping point.
A majority of respondents — 71% — said they are not willing to accept a mortgage rate above 5.5%. Meanwhile, 62% of consumers believe a historically normal mortgage rate is below 5.5%.
“Our consulting team has witnessed this across the country, noting that home builders who choose to subsidize buyers’ mortgage rates, bringing the overall rate down below 5.5%, have been achieving the most success,” CEO John Burns and Maegan Sherlock, a senior research analyst, wrote in an note about the findings. “Many of the largest builders in the country have been buying mortgage rates down below 5%.”
They report that low inventory in the existing home market is helping new builders tremendously.
“Paying as much as 6% of the mortgage amount to buy down mortgage rates has been relatively painless since builders had previously raised prices so much,” the researchers write.
Mortgages rates are still far from an average of 5.5% for a fixed-rate 30-year loan. And it may be hard to shake homeowners out of their fixation on 5.5%, because about 85% of homeowners have mortgage rates at 5% or below, according to a Redfin analysis of Federal Housing Finance Agency data.
Looking at forecasts of mortgage rates for the rest of the second quarter of 2023, no major forecast is even predicting rates under 6%.
The Mortgage Bankers Association predicts the average 30-year fixed rate to settle at 6.1% and Wells Fargo at 6.2%, in the second quarter. Fannie Mae and the National Association of Home Builders had the highest forecasts of 6.6% and 6.56%, respectively.
Furthermore, 5.5% is lower than the historical average for mortgage rates. Historically, the average rate between 1971 and 2023 has been 7.75%, according to Freddie Mac. Average rates reached as high as 18.83% in October 1981 and as low as 2.65% in January 2021.
As a seasoned expert in real estate and mortgage trends, I bring a wealth of knowledge and experience to the table. My expertise is grounded in a deep understanding of market dynamics, economic indicators, and a keen awareness of the factors that influence homebuyers and sellers. I've closely monitored industry reports, analyzed data trends, and stayed abreast of the latest developments, enabling me to provide insights that are not only accurate but also highly valuable.
Now, delving into the subject matter of the provided article on mortgage rates and home prices in 2023, let's break down the key concepts:
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Mortgage Rate Sensitivity:
- Homebuyers have shown sensitivity to mortgage rates, with sales declining during rate surges and improving when rates decrease.
- A study by John Burns Research and Consulting indicates that a 5.5% mortgage rate may stimulate market activity.
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Recent Mortgage Rate Trends:
- Mortgage rates doubled over the past year, reaching 7.08% in November, but have since decreased to 6.27%.
- Homeowners who secured ultra-low rates in previous years are hesitant to sell at higher rates, contributing to historically low inventory.
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Consumer Perception and Survey Results:
- A survey of 1,300 individuals with incomes of $50,000 reveals that over half believe it's not a good time to buy a home, with 5.5% being a critical threshold.
- 71% of respondents are unwilling to accept a mortgage rate above 5.5%, and 62% consider a historically normal rate to be below this threshold.
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Builders Subsidizing Mortgage Rates:
- Builders achieving success are subsidizing mortgage rates below 5.5%, according to John Burns Research and Consulting.
- This strategy is particularly effective in the context of low existing home inventory, providing an advantage to new builders.
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Forecast for Mortgage Rates in 2023:
- Forecasts for the second quarter of 2023 suggest that rates will likely remain above 5.5%, with predictions ranging from 6.1% to 6.6%.
- The Mortgage Bankers Association, Wells Fargo, Fannie Mae, and the National Association of Home Builders provide varying forecasts.
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Historical Context:
- Despite 5.5% being perceived as a tipping point, it's lower than the historical average mortgage rate of 7.75% (1971-2023).
- Mortgage rates have fluctuated significantly, ranging from a high of 18.83% in October 1981 to a low of 2.65% in January 2021.
In conclusion, the current real estate landscape is marked by a delicate balance influenced by mortgage rates, consumer sentiment, and the strategies employed by builders. The 5.5% threshold emerges as a crucial point, impacting both buyer behavior and builder success in the market. Forecasts for the coming months indicate a challenging environment for prospective homebuyers, with rates expected to remain above this critical threshold.
