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Mortgage Rates Are Down While Bleak Forecasts Arise for 2023 in Housing

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On The Mortgage Front

Freddie Mac (OTCMKTS:FMCC) reported the 30-year fixed-rate mortgage averaged 6.58% as of Nov. 23, down from last week when it averaged 6.61%; a year ago at this time, it averaged 3.10%. And the 15-year fixed-rate mortgage averaged 5.90%, down from last week when it averaged 5.98%; a year ago at this time, it average 2.42%.

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“Mortgage rates continued to tick down heading into the Thanksgiving holiday,” said Sam Khater, Freddie Mac’s chief economist. “In recent weeks, rates have hit above seven percent only to drop by almost half a percentage point.

This volatility is making it difficult for potential homebuyers to know when to get into the market, and that is reflected in the latest data which shows existing home sales slowing across all price points.”

Although rates were down, mortgage applications fell for the first time in three weeks – the Mortgage Bankers Association’s (MBA) Market Composite Index dipped by 0.8% on a seasonally adjusted basis from one week earlier.

Although the Purchase Index saw a 4% uptick, the unadjusted Refinance Index dropped by 13% from the previous week and was 86% lower than the same week one year ago.

Mortgage rates declined again last week, following bond yields lower,” said MBA Vice President and Deputy Chief Economist Joel Kan. “The economy here and abroad is weakening, which should lead to slower inflation and allow the Fed to slow the pace of rate hikes.

Purchase activity increased slightly after adjusting for the Thanksgiving holiday, but the decline in rates was still not enough to bring back refinance activity.”

On The Homebuying Front

Pending home sales were down for the fifth consecutive month in October, according to the National Association of Realtors (NAR). The trade group’s Pending Home Sales Index (PHSI) sank 4.6% from September to 77.1 – on a year-over-year measurement, the PHSI was down by 37%. An index of 100 is equal to the level of contract activity in 2001.

“October was a difficult month for home buyers as they faced 20-year-high mortgage rates,” said NAR Chief Economist Lawrence Yun. “The West region, in particular, suffered from the combination of high interest rates and expensive home prices.

Only the Midwest squeaked out a gain. The upcoming months should see a return of buyers, as mortgage rates appear to have already peaked and have been coming down since mid-November.”

Separately, the Federal Housing Finance Agency (FHFA) reported home prices recorded a 12.4% year-over-year increase in the third quarter of this year, as well as a scant 0.1% uptick from the second quarter. Prices rose in all 50 states and the District of Columbia between the third​ quarters of 2021 and 2022, with the greatest annual appreciation in Florida (22.7%), South Carolina (18.4%) and Tennessee (17.9%).

House prices were flat for the third quarter but continued to remain above levels from a year ago.” said William Doerner, supervisory economist in FHFA’s Division of Research and Statistics. “The rate of U.S. house price growth has substantially decelerated. This deceleration is widespread with about one-third of all states and metropolitan statistical areas registering annual growth below 10%.”

Looking ahead into 2023, a new forecast from Realtor.com is predicting average mortgage rates of 7.4%, with early 2023 hikes followed by a slight retreat to 7.1% by year-end.

Home sale prices are expected to continue accelerating, albeit to a single-digit yearly pace for the first time since 2020, although sales could hit their lowest level since 2012 even though housing inventory is expected to expand further.

“Compared to the wild ride of the past two years, 2023 will be a slower-paced housing market, which means drastic shifts like price declines may not happen as quickly as some have anticipated,” said Realtor.com Chief Economist Danielle Hale. “It will be a challenging year for both buyers and sellers, but an important one in setting the stage for home sales to return to a sustainable pace over the next two to three years.”

Hale added, “With mortgage rates continuing to climb as the Fed navigates the economy to a soft-ish landing, higher costs will lead to fewer closings, but that doesn’t mean homebuying will stop entirely in 2023.

Americans who are determined to make a move will find that staying up-to-date on the market, flexibility, creativity and a healthy dose of patience will go a long way toward success in the year ahead.”

Realtor.com is operated by the News Corp (NASDAQ:NWS) subsidiary Move Inc.

And many Americans are predicting a problematic housing market in 2023. A new poll of 2,000 adults conducted by LendingTree (NASDAQ:TREE) found over in two in five respondents forecasting a housing market crash next year, and nearly three-quarters of that share believe it will be worse than the 2008 meltdown.

Among the crash predictors, 33% believe inflation will be the biggest driver, with high interest rates (24%) and a lack of affordable housing (16%) next.

“While I do think the housing market will continue to slow over the next 12 months and some people may end up underwater on their mortgages as a result, a major crash doesn’t appear likely — at least not at the moment,” said LendingTree's Senior Economist Jacob Channel.

“With that said, I do think that home prices will probably come down next year. As of now, 5% to 10% declines in many markets seem reasonable to me.”