While mortgage rates have fallen considerably from November’s recent high, buying a home is still far out of reach for most Americans. In fact, for six out of the last seven months, a family earning the median income would not qualify for a median-priced home, according to the latest data from the National Association of Realtors.
Mortgage demand has dropped precipitously with people priced out, but don’t expect falling demand to increase supply or lower home prices. NAR Senior Economist and Director of Forecasting Nadia Evangelou told Straight Arrow News that they expect home prices to stay flat in 2023 before rising in 2024.
“In a balanced market, middle-income buyers should be able to afford to buy half of the homes listed for sale. However, these buyers can currently afford to buy only 20% of all available,” Evangelou said. “The share of first-time homebuyers will likely shrink even further from 2022’s all-time lows. Housing affordability is definitely going to be the main driver of the housing market for 2023.”
In 2022, Evangelou said owning a home became 60% more expensive than the previous year, forcing many buyers out of the market. Even with 30-year mortgage rates declining from November’s 7.08% peak to 6.33% in January, according to Freddie Mac, she said first-time homebuyers still earn $30,000 less than the income needed to purchase a starter home.
“Generally, higher mortgage rates make prices cool. However, home prices are still higher than a year ago. Even though there are significantly fewer buyers in the market, demand continues outpacing supply. This is due to the persistent housing shortage,” she said.
She said two things will impact 2023 housing inventory: fewer new construction starts and a lock-in effect for existing homeowners.
“Fewer homeowners are expected to sell their homes and purchase another as mortgage rates are substantially higher than in 2021 and typically, higher mortgage rates lead to lower mobility rates over time,” Evangelou said.
However, she said that while new housing starts are expected to lag, the number of homes under construction is around record highs, especially for apartment buildings. The completion of these projects could help counter price and rent increases seen across the country.