The US housing market has been experiencing a significant slowdown due to a continuous rise in mortgage rates, with Freddie Mac’s chief economist, Sam Khater, reporting an increase of two full percentage points in 2023. The 30-year fixed rate now stands at 7.79%, and the 15-year fixed rate averages 7.03%. This marks the seventh consecutive week of increases, a trend not seen since Spring 2022.
This surge in rates has led to affordability issues, causing potential homebuyers to hesitate due to the increased cost of house payments. Consequently, more potential sellers are retaining their homes to avoid higher interest rates. The Mortgage Bankers Association has noted a drop in mortgage applications to their lowest level since 1995.
In California, this trend has resulted in a 26% payment hike in 2023 alone. CoreLogic’s chief economist, Selma Hepp, attributed this trend to an unexpected GDP growth of a 4.9% annualized rate in Q3 compared to 2.1% in Q2. Despite Federal interest rate policy effectively slowing inflation and maintaining low unemployment rates, new homebuyers are confronted with higher mortgage payments. Most homes on the market are newly built as existing homeowners hold onto their properties.
Redfin (NASDAQ:) predicts that only about 4.1 million homes will be sold in 2023, marking it as the slowest year for home sales since the housing bubble burst in 2008. Moreover, last month saw a cancellation of 16.3% of home purchase agreements, a rate not seen in nearly a year.
Freddie Mac’s chief economist emphasized that these trends have created a climate that scares potential homebuyers and causes would-be buyers to balk at the cost of house payments. The current situation suggests a continued slowdown in the housing market, with more insights into these trends to be found in the ‘Home Stretch’ newsletter.
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