Mortgage rates rose this week, breaking their six-week streak of decline just before the new year.
The average 30-year fixed mortgage rate rose to 6.42% from 6.27% the previous week, according to Freddie Mac. It was the first increase since mid-November, when rates began to decline after the Federal Reserve signaled it would slow its interest rate hikes amid easing inflation.
Overall, mortgage rates have doubled this year, which, combined with high house prices and soaring inflation, has stifled home buying activity. As fears of a recession grow, few economists expect housing conditions to improve significantly in the near term.
“The housing market remains in the doldrums with declining sales, inventories and prices,” Sam Khater, chief economist at Freddie Mac, said in a statement. “The decline in sales and the deceleration in house prices started quickly in early 2022, but have moderated more recently. As the intensity of the weakness moderates, the market continues to decline and leading indicators suggest that the Housing will remain low throughout the winter.”
Demand remains stagnant during the holidays
Demand for buy-side mortgages remained subdued in the week leading up to the Christmas holidays, the Mortgage Bankers Association’s latest demand survey showed. Shopping activity was down 3% from the previous week and 36% from the same week a year earlier.
“It’s a particularly slow time of year for home buying, so it’s no surprise that buying inquiries haven’t budged much in response to lower mortgage rates,” Mike Fratantoni, senior vice president and chief economist at the MBA, said in a statement. adding that buyers could return to the market later in 2023 if rates fall further and economic conditions improve.
But now accessibility issues remain.
For example, the buyer of a typical home priced at $416,000 faces a monthly mortgage payment of around $2,100 – without taxes or insurance – a 61% increase over last year. , according to George Ratiu, senior economist and head of economic research at Realtor.com.
“For many buyers, there’s a real financial ceiling that they’ve hit that they just can’t get past,” Ratiu said. “Over time, things will adjust. Incomes will rise and rates may flatten, house prices will continue to fall past their peak. But in the short term, obviously many, many buyers are essentially left on the sidelines.
Seller confidence continues to fall
As the year draws to a close, few home sellers have a positive outlook for the housing market in 2023, according to Fannie Mae’s latest housing confidence survey.
The latest data confirms the pessimism.
Pending home sales fell 4% in November and were down 37.8% year over year, according to the National Association of Realtors, with double-digit declines across the country. Meanwhile, existing home sales fell for the 10th straight month in November and were down 35.4% from a year earlier.
“We’ve had a sticker shock phenomenon this year, which has led to potential sales cancellations and we’ve gotten more buyers to forgo applying for a loan,” Fratantoni said.
Meanwhile, those who don’t lower their listing prices are pulling their properties off the market. New listings fell 28.4% year-over-year in November, according to data from Redfin, the biggest drop on record outside of April 2020.
The housing downturn is likely to continue into 2023, Fratantoni said, as higher mortgage rates and still high prices remain a major concern. For buyers still in the market, it could be a silver lining.
“It’s hard to predict the trajectory of rates…but we expect them to come down next year,” Fratantoni said. “We also expect homes to stay on the market for a bit longer in 2023. There will be fewer bidding wars and therefore the whole buying process will be less frantic for buyers than it may seem. was in 2020 and 2021.”
Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.
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