by American Stages Realty & Management, INC.
The increase in interest rates has put strong downward pressure on mortgage applications. The average mortgage contract interest rate decreased over the last two months of 2022, from 7.08% to 6.42% by year-end. As a result of the decrease in rates, mortgage application volume saw a slight increase as buyers were eager to lock on a lower rate. However, this increase was short-lived as applications plummeted in the final two weeks of the year. Year-over-year, mortgage applications are down close to 41%. While interest rates were also down for refinances over the same period, the rate of refinances did not increase. This is likely due to most homeowners refinancing earlier in 2022 when rates were much lower. Also, for new homebuyers, it is believed that a refinance is only worth it if the interest rate on the new loan is at least 1% lower than the rate on the current loan. Since rates have not dropped by 1% from their highs, few people are looking to refinance. Year-over-year, refinance applications are down more than 84%.
So far in 2023, mortgage rates have begun to head higher. This means that when mortgage application data is released, it will likely show a decline in volume. Housing prices are staying high despite the increase in interest rates. Part of this is due to tight inventory, but it's also the result of seller expectations. Sellers are looking to maximize how much they get for their homes and aren't open to much negotiating. Historically, housing prices tend to fall during a recession. However, while areas of the country will see price declines, the expectation of a substantial national price decrease is unlikely to be met. This is primarily due to the lack of supply and higher inflation, adding to the cost of newly constructed homes. Any inventory increase is likely to result in homes staying on the market for longer as opposed to more new homes on the market, as many homebuilders have slashed production amid a weakening housing market and higher costs. For potential homebuyers looking to buy after a significant price decline, most experts say that a 2008-style drop in housing prices in 2023 is unlikely.
This is even as the Federal Reserve has indicated it's keeping the federal funds rate high until inflation markers show signs of easing. The best outlook for the housing market is that inflation shows signs of cooling off by the summer, and the Federal Reserve can stop raising rates or begin to lower rates. In this scenario, mortgage rates would drop in the year's second half, spurring the housing market. Housing demand is slowing due to higher interest rates and the fear of recession. While most experts don't believe the housing market will crash, the slowdown in sales will impact home prices, causing them to increase more slowly. For those interested in buying a home, it is wise to monitor current mortgage rates, other economic indicators, and the Federal Reserve to see how much higher rates might climb. If there is a belief, they will climb higher, locking in sooner rather than later could be a smart move.
The primary benefit of buying in 2023? To enjoy the benefits of homeownership sooner rather than later. Owning a home means getting to build equity in a property. That could help you increase your net worth and give you more borrowing options should the need arise. March 2023 begins with 30-year, fixed-rate conventional mortgage rates averaging 6.85 percent. Four weeks ago, 30-year mortgage rates were under six percent. The rapid run-up reminds us that rates are unpredictable. Payments are up nine percent monthly for a first-time buyer. It changes how much home you can afford to buy. Thankfully, the government is getting involved. First-time buyers got an assist last month from a federal agency intent on making homeownership affordable and attainable. February 23, 2023, the Federal Housing Administration announced a plan to reduce annual mortgage insurance premiums (FHA MIP) by 0.30 percentage points, which lowers monthly payments for FHA-backed homeowners by $300 per year for every $100,000 borrowed. It’s the first FHA MIP reduction in more than eight years and the third government intervention to help first-time buyers in the last ninety days. The U.S. housing market isn’t heading to a crash, and signals suggest that a home price recovery is underway. The National Association of realtors show the national housing supply at 2.9 months, which means at the current sales pace for homes, every residential property for sale would get sold by late May. When home supply is less than six months, prices tend to climb. Home prices are also getting pressure from a new wave of buyers.
In conclusion, 2023 is a good time to buy a home. In fact, a sample of real estate contracts shows 42% of home sellers gave concessions to buyers recently, including money for home repairs, closing costs, and mortgage rate buydowns. Another thirty-one percent lowered their home’s sale price to make their homes more affordable to prospective buyers. Today’s home sellers behave like they’ve lost their leverage over buyers. Data suggests they haven’t. The supply of homes is down and the demand for homes is up. Rising mortgage rates create urgency The current housing climate represents a home-buying opportunity. Buyers can make demands of sellers and have those demands get met. Buyers will keep their market advantage between now and mid-April and get homes at lower, affordable prices.
Call us today to Set up a consultation so one of our experienced agents can provide you with all of the information you need to make an informed decision.
Brie Camacho 805-345-0677
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