How will rising interest rates affect the housing market in 2023? Experts weigh

ANGELS – At the height of the COVID-19 pandemic, the Federal Reserve kept interest rates historically low, which meant a homebuyer could borrow money at an incredibly low rate.

Now, experts say the housing market is looking completely different from the last two years of extraordinary performance, forcing home hunters to grapple with suddenly high rates, rising house prices and a tight supply of properties on the market.

“It has completely changed,” Lawrence Yun, chief economist at the National Association of Realtors (NAR), told FOX television stations. “Mortgage rates have more than doubled and this is limiting buyers’ ability to take out a mortgage.”

High mortgage rates impact the housing market

Federal authorities recently announced another aggressive rate hike – the third consecutive three-quarters percentage point increase and the sixth rate hike this year alone.

It’s a streak that has made mortgages and other consumer loans increasingly expensive and increased the risk of recession.

“Interest rates have risen at the fastest pace in four decades and are at 20-year highs. As a result, interest rate-sensitive sectors of the economy such as housing, autos, appliances, furniture, etc. have declined significantly,” Sam Khater, vice president and chief economist of Freddie Mac’s economic and housing research division, told FOX.

The average rate on a 30-year fixed mortgage – which was just 3.14% a year ago – topped 7% at the end of last month, mortgage buyer Freddie Mac reported. , the first time in two decades.

According to new data released Friday by the NAR, the monthly mortgage payment on a typical existing single-family home with a 20% down payment was $1,840, up 50% year-over-year.

And as a result, the mortgage rate, which is the lifeblood of most home purchases, quickly reduced the appeal of eligible buyers.

“It’s definitely impacting the housing market, there’s no doubt about it,” Jon Grauman, founder and agent of the Grauman Rosenfeld Group in Beverly Hills, Calif., told FOX.

Grauman and other experts note that rising rates have also reduced the number of home sales on the market.

According to the NAR, sales of previously occupied U.S. homes fell in September for the eighth consecutive month, matching the pre-pandemic sales pace of 10 years ago.

Housing market projections in 2023

But even though the number of sales has fallen as mortgage rates have risen, experts say home prices are still rising or flat in many parts of the United States.

“A lot of people think that interest rates are going up, so housing prices are going to fall off a cliff. That’s actually not happening,” Grauman explained.

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The difference this time around, Grauman notes, is a supply and demand issue.

Sellers are less motivated to sell in an economy with higher interest rates, so with so few properties on the market, experts say it’s helping drive up house prices, even in a slowing market .

“Even though there are fewer transactions, we haven’t really seen a decline in home values, and frankly, I don’t anticipate we’re going to,” Grauman continued.

But as the market evolves, most experts agree that the strength of the housing market in 2023 will depend on next year’s mortgage rates.

If mortgage rates start falling next year, Yun thinks we’ll see an increase in homebuyers wanting to get back into the market. But if mortgage rates continue to stay high, it will lead to poorer market conditions and slower sales.

Khater’s sentiment is similar, noting that if the economy falters in 2023 due to the higher rate environment, it will further weaken the housing market.

“Changes in interest rates have long and variable impacts on the housing market. The housing market has still not felt the full impact of the most recent rate hikes over the past two months, I expect so that house sales and prices remain weak throughout 2023,” Khater continued.

RELATED: The Federal Reserve raises interest rates by three quarters of a point

One thing that may not change much in 2023 is rising US home prices due to the economy’s limited inventory supply.

New data shows sales prices for existing single-family homes rose in nearly every metro area measured — 181 out of 185 — in the third quarter of 2022, the NAR revealed Friday. The national median price of existing single-family homes climbed 8.6% from a year ago to $398,500.

“Right now, I think the market is still trying to find its footing – it’s literally moving under our feet,” Grauman said, adding, “What people have been waiting for is this sort of wave of new stocks to help balance the market, and I hate to be the bearer of bad news, it just doesn’t come.”