Home Sales Plunge to 30-Year Low
Home sales in 2023 reached their lowest point in nearly 30 years due to several factors, including surging mortgage rates, a shortage of available properties, and rising real estate prices.
The National Association of Realtors reported that existing U.S. home sales totaled 4.09 million last year, marking an 18.7% decline from the previous year. This represents the weakest year for home sales since 1995 and the largest annual decline since 2007, which marked the start of the housing slump in the late 2000s.
According to the NAR, the median national home price for 2023 increased by just under 1% to a record high of $389,800. However, only about 16% of homes across the country were considered affordable for the typical home buyer. This is a significant drop from the approximately 40% share prior to 2022, as reported by Redfin economist Zhao Chen.
Last year's slump in home sales mirrors the nearly 18% annual decline experienced in 2022, when mortgage rates began to rise. By the end of that year, mortgage rates had more than doubled. This trend continued in 2023, leading to an average rate of 7.79% on a 30-year mortgage by late October, the highest level since late 2000.
Home Loan Borrowing Costs Limit Homebuyers' Purchasing Power
The sharply higher home loan borrowing costs limited home hunters' buying power on top of years of soaring prices. A dearth of homes for sale also kept many would-be homebuyers and sellers on the sidelines.
"A persistent shortage of homes for sale and some uptick in demand due to the recent decline in mortgage will keep home price growth positive 2024," Nancy Vanden Houten, lead U.S. economist for Oxford Economics, said in a research note. "If more sellers enter the market in response to lower mortgage rates, the increase in supply might weigh on prices, but only at the margin."
Home prices rose for the sixth straight month in December. The national median home sales price rose 4.4% in December from a year earlier to $382,600, the NAR said.
Mortgage rates have been mostly easing since November, echoing a pullback in the 10-year Treasury yield, which lenders use as a guide to pricing loans. The yield has largely come down on hopes that inflation has cooled enough for the Federal Reserve to shift to cutting interest rates this year.
The average rate on a 30-year home loan was 6.6% this week, according to mortgage buyer Freddie Mac. If rates continue to ease, as many economists expect, that should help boost demand heading into the spring homebuying season, which traditionally begins in late February.
Mortgage Rates Remain Higher, Limiting Inventory in Housing Market
The average mortgage rate remains higher than it was two years ago, discouraging homeowners from selling and limiting the number of previously occupied homes on the market. Lawrence Yun, the chief economist of the National Association of Realtors (NAR), stated that more inventory is needed to get the housing market moving.
Despite easing mortgage rates, existing home sales fell 1% in December to a seasonally adjusted annual rate of 3.78 million, the slowest pace since August 2010. Economists were expecting sales to be around 3.83 million.
Outlook for Mortgage Rates
Many economists predict that mortgage rates will remain just above 6% by the end of the year. Yun believes that the recent decrease in rates and the expected increase in inventory will lead to higher sales in the coming months.
Survey Shows Optimistic Outlook for Mortgage Rates
A recent survey conducted by Fannie Mae revealed that 31% of consumers anticipate a decline in mortgage rates over the next year. This marks a more positive outlook compared to the previous month.
The survey, which was conducted in December, indicates that consumers are feeling optimistic about the housing market. With lower mortgage rates, potential homebuyers may be encouraged to enter the market.
The survey findings align with recent trends in the housing market, where low mortgage rates have been driving increased demand for homes. This has led to a competitive market, with sellers seeing multiple offers and homes selling quickly.
Experts suggest that the optimism around mortgage rates could be attributed to the current economic climate and the actions taken by the Federal Reserve to keep interest rates low. However, it is important to note that mortgage rates are influenced by a variety of factors and can fluctuate over time.
Overall, the survey results indicate a positive sentiment among consumers regarding mortgage rates. This could have implications for the housing market in the coming months as more individuals consider purchasing homes.
