Mortgage Rates Reach 20+ Year High – What Will the Housing Market Fallout be in 2023?
It has been a spooky October for the U.S. housing market, with mortgage rates hitting a 21-year high and home sales decelerating. The prognosis for 2023 is similarly eerie, as industry experts warn of a continued slump heading into the new year.
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The latest survey from the Mortgage Bankers Association (MBA), released on Tuesday, found that mortgage applications during the week ending Oct. 21, 2022, fell 1.7% from the previous week, due mainly to sharply higher mortgage rates.
Mortgage rates increased for the 10th straight week as the 30-year fixed rate hit 7.16%, its highest since 2001. That contributed to a 2% decline in home purchase applications, which fell to their slowest pace since 2015 and are down more than 40% from last year.
“The ongoing trend of rising mortgage rates continues to depress mortgage application activity, which remained at its slowest pace since 1997,” Joel Kan, MBA’s Vice President and Deputy Chief Economist, said in a news release. “MBA’s forecast expects both economic and housing market weakness in 2023 to drive a 3% decline in purchase originations, while refinance volume is anticipated to decline by 24%.”
The housing market is feeling the pain from both slower mortgage activity and continued high home prices in many markets. Sales of newly built, single-family homes in September fell 10.9% from the prior year to a 603,000 seasonally adjusted annual rate, the National Association of Home Builders (NAHB) reported this week, citing new data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.
“Builders continue to face lower buyer traffic due to declining affordability conditions as the housing downturn continues,” NAHB Chairman Jerry Konter said in a statement. “Builder sentiment has declined for 10 consecutive months. The entry-level market in high-cost areas has been particularly affected, with growing numbers of first-time and first-generation buyers priced out of the market.”
New home sales are down 14.3% on a year-to-date basis compared to 2021, NAHB Chief Economist Robert Dietz said. Even more alarming is that sales are now down 1.9% on the same basis compared to pre-pandemic 2019 levels.
As mortgage and buyer activity continues to drop, home prices are likely to do the same. According to the latest S&P CoreLogic Case-Shiller Indices, also released this week, home price gains in August 2022 decelerated across the United States. The index found that nationally, home prices rose 13% year-over-year in August, down from 15.6% the previous month.
On a month-over-month basis, the U.S. National Index posted a 0.9%, decrease in August after seasonal adjustments, while the 10-City and 20-City Composites both logged declines of 1.3%.
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“The forceful deceleration in U.S. housing prices that we noted a month ago continued in our report for August 2022,” Craig J. Lazzara, Managing Director at S&P DJI, said in a statement. “Price gains decelerated in every one of our 20 cities. These data show clearly that the growth rate of housing prices peaked in the spring of 2022 and has been declining ever since.”
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