Title: 2023 Housing Market Defined by Mortgage Rate Lock-in Effect
No other phrase has defined the 2023 housing market as much as the “mortgage rate lock-in effect” – a phenomenon that brought the industry to a standstill, putting downward pressure on everything from inventory levels to home sales.
The pandemic-era sub-5% mortgage interest rates that 85% of mortgage holders are locked in to kept homeowners from selling their home and buying another at elevated interest rates, which peaked at 7.79% the week ending Oct. 26, according to Freddie Mac.
However, there are signs that market conditions will be improving. Mortgage rates dropped steadily over the past seven weeks, averaging 6.61% for a 30-year fixed mortgage, the week ending Dec. 28. The lower mortgage rates provided a boost to existing-home sales which grew in November, up 0.8% from October and breaking a streak of five consecutive monthly declines, according to the National Association of Realtors.
One thing most experts don’t expect to see is an end to shortage of homes for sale. “Despite this, households will have more options in 2024 from a small uptick in single-family home construction, and the completion of the large number of multifamily units that are under construction, the vast majority of which are destined to be rental homes,” says Danielle Hale, chief economist for Realtor.com.
Nationwide sales are expected to see only a modest uptick in 2024 over 2023’s long-term low. Real estate activity will vary significantly from market to market with some top-growth areas expected to see double-digit increases, according to Hale.
Most experts predict the average 30-year mortgage rate to linger anywhere between 6.1% to 7% range in the first quarter, then decline throughout the year.
With a decline for mortgage interest rates and an ongoing housing deficit, Robert Dietz, the chief economist for the National Association of Home Builders is forecasting a gain for single-family housing construction starts in 2024. This will be the first year of increase after declines in 2022 and 2023.
Overall, it is expected that the housing market will see improvements and changes in 2024 compared to the trends seen in 2023.