This year’s housing market has been notably different from those in the recent past. Gone are the record-low mortgage rates, skyrocketing prices and constant bidding wars many consumers have become accustomed to. Instead, prices are falling in many places, and the 6%-plus interest rates have buyers and sellers alike pulling back.
The question is, how long will this market cooler last? As we get into spring — typically the hottest time of the year for housing — will things turn around?
Here’s the spring housing market forecast according to data and experts. Spoiler alert: A lot hinges on mortgage rates.
Where are home prices and mortgage rates headed
Home prices have come down quite a bit since their peak in 2022. In June, they sat at a median of $413,800, according to the National Association of Realtors. As of February, they sat at just $363,000 — down 12% in less than a year.
The price drop is due to a combination of factors. Primarily, high inflation and mortgage rates have been eating into buyers’ budgets, causing many to hit pause on their home searches entirely. Seasonality also plays a role. Real estate tends to cool in the fall and winter, picking back up by spring and into summer.
This spring could look a little different, though, experts project — but it all depends on how inflation and mortgage rates play out. If inflation remains high, the Federal Reserve will continue to increase its benchmark rate, which usually results in higher mortgage rates, too. If the Fed gets inflation under control, rates could fall, spurring more demand and sending prices upward.
“Keen on cooling housing demand, the Fed is highly unlikely to cut federal fund rates in 2023,” says Nik Shah, CEO of Home.LLC. “With rates remaining high for the rest of the year, home prices will keep declining further. ”
Currently, the Mortgage Bankers Association predicts the average 30-year mortgage rate will end Q2 at an average rate of 6.1% and finish out the year around 5.3%. Mortgage purchaser Fannie Mae projects a 6.6% and 6.4% rate, respectively — not too far from last week’s 6.32% average.
“As long as inflation is curbed — which it appears to be, the Federal Reserve has indicated they have no intention to raise interest rates more than necessary,” says Maureen McDermut, a real estate agent at Sotheby’s International in Montecito, California. “The third quarter of 2023 should see the stop rate increase, and Q4 may even see the rate being reduced. However, if inflation continues to trend upward, then the Fed has made it clear they will continue to raise rates.”
What about supply and demand?
If rates remain high for the next few months, experts predict demand will remain low — at least lower than we’ve seen over the past few years. This could lead to more inventory sitting on the market — and staying there longer.
“The prices for single family homes have escalated tremendously, and that, coupled with rising interest rates this past year, has priced a lot of young families out,” says Rena Kliot, founder of Pulse International Realty in Miami Beach, Florida. “As a result, the days a home is on the market will continue to rise, so there may end up being more room for negotiating.”
As for overall supply, builders have been leaning up activity this year. In February, both building permits and housing starts were up double-digits compared to January, though they’re still significantly down compared to a year ago.
The major “what if” is whether existing homeowners will feel inclined to list — particularly the 85% who have a current rate below 5%.
“Moving and listing their homes right now will mean doubling their mortgage payments,” Shah says. “They literally have golden handcuffs.”
An uncertain future
Housing market predictions are just that — predictions. And while we won’t know for sure until spring arrives, for now, it’s looking like buyers will have more power than is typical for this time of year. It all hinges on where rates go.
“As rate hikes cease, demand will rapidly increase,” Shah says. “Once rates drop below 5%, 10 million homebuyers can return to the market.”
So what’s a prospective homebuyer to do in the meantime? Continue watching mortgage rates and be prepared to strike when the moment is right.
Editorial Disclosure: All articles are prepared by editorial staff and contributors. Opinions expressed therein are solely those of the editorial team and have not been reviewed or approved by any advertiser. The information, including rates and fees, presented in this article is accurate as of the date of the publication. Check the lender’s website for the most current information.
this article was originally published on SFGate.com and reviewed by Lauren Williamson, who serves as Financial and Home Services Editor for the Hearst E-Commerce team. Email her at [email protected].