Entering 2023, the U.S. housing market found its footing across many regions, achieving a semblance of stability after weathering a mild price correction in the second half of 2022. A combination of factors, including mortgage rates slipping below the 6.5% mark, a shortage of available homes for sale, and the seasonal uptick in demand during the early spring months, contributed to this newfound equilibrium.
However, just as the housing market braces itself for the traditionally subdued fall and winter period, real estate professionals are closely watching the reemergence of a familiar threat: 7% mortgage rates.
On Tuesday, the average 30-year fixed mortgage rate ticked up to 7.13%. This figure stands in stark contrast to the sunnier days in February when the average 30-year fixed mortgage rate got as low as 5.99%. This latest jump puts mortgage rates just below the peak of 7.37% witnessed last October.
When considering current house price and income levels, researchers at the Federal Reserve Bank of Atlanta estimate that affordability, or rather the lack of affordability, reaches levels comparable to the peak of the housing bubble whenever mortgage rates approach the 7% range.
This sudden resurgence of 7% mortgage rates prompts a pressing question that now hangs over the housing market: Are we poised for a resumption of month-over-month home price declines, particularly as the market enters the historically subdued fall and winter? After U.S. home prices, as tracked by the Case-Shiller National Home Price Index, dipped 5.1% between June 2022 and January 2023, the index rebounded with vigor, showcasing a 4.2% surge from February 2023 to May 2023.
View this interactive chart on Fortune.com
Housing economists are fairly divided as to whether the recent uptick in mortgage rates puts the housing market at risk for further house price declines. Economists at firms like Morgan Stanley, Moody’s Analytics, and Freddie Mac expect national house prices will decline enough in the second half of 2023 to wipe out all the national gains notched in the first half of the year. Property economists at Capital Economics also believe month-over-month house price declines are about to resume.
Meanwhile, housing economists at AEI Housing Center, Zillow, and CoreLogic believe U.S. home prices have bottomed. In their eyes, the lack of homes for sale—which according to Realtor.com in June 2023 was 49.7% below June 2019 levels—will be enough to prevent further house price declines even if mortgage rates do remain elevated for a prolonged period of time.
And while housing affordability has deteriorated significantly, economists at AEI Housing Center say onlookers should remember that the resilient labor market—which boosts a historically low 3.6% unemployment rate—also acts as support for national home price growth.
Keep in mind that whenever a group like Morgan Stanley or CoreLogic says “U.S. home prices”, they’re talking about a national aggregate. On a regional level the story might vary, with some overheated markets like Austin continuing to fall while relatively more affordable markets like Scranton keep inching higher.
Want to stay updated on the housing market? Follow me on Twitter at @NewsLambert.
This story was originally featured on Fortune.com
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