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Whether you’ve been looking to buy a house or car or even finance a large home appliance, it’s no secret that interest rates have gone up sharply in the past few years.
Anat Nusinovich, an Economist for the National Association of REALTORS® (NAR), recently summarized the drastic difference in interest rates in such a short period. “Between 2018 and 2022, most mortgage applicants (around 5 and a half million people) received a mortgage rate below 3%. However, the average U.S. rate between those years was 4.22%, and only 3.8 million applicants received a rate close to the average. The lowest number of applicants (52,000) received a rate between 9% - 9.5%, and only 88,000 applicants received a rate of 10% and above.”
Nusinovich continues. “In contrast, in 2022, only 282,302 applicants received a rate below 3%. That year, most applicants (914,682) secured a rate between 5.5% and 6% on their loans, a substantially higher rate than the previous years because of the Federal Reserve’s rate hikes. In addition, 846,996 applicants received a rate between 4.5% and 5%, and only 20,934 applicants received a rate above 10%.”
Ok, so that’s a lot of numbers, but it boils down to this: From 2018-2022, most people who were approved for a mortgage were able to secure a rate below 3%, and currently, most applicants since 2022 are sitting around 5.5% and 6%. Since home prices have not fallen substantially, these higher rates can significantly limit the type and size of home one can afford.
Where do we go from here? Dr. Lawrence Yun, Chief Economist at NAR, forecasts that the 30-year fixed mortgage rate will average 6.9% for 2023 and decrease to an average of 6.3% in 2024, while the unemployment rate will lower to 3.7% in 2023 before increasing to 4.1% in 2024.
NAR also predicts existing home sales will decrease 17.5% in 2023, settling at 4.15 million, before rising 13.5% to 4.71 million in 2024. Compared to last year, national median existing-home prices are projected to remain stable in 2023 – edging higher by 0.1% to $386,700, before increasing by 0.7% next year to $389,500. Housing starts will drop 10.4% from 2022 to 2023, to 1.39 million, before rising to 1.48 million, or 6.5%, in 2024.
“Because of homebuilders’ ability to create more inventory, new-home sales could be higher this year despite increasing mortgage rates. This underscores the importance of increased inventory in helping to get the overall housing market moving,” said Yun.
NAR expects newly constructed home sales will grow from last year by 4.5% in 2023 to 670,000 – because of additional inventory in this market segment – and increase by another 19.4% in 2024, to 800,000. The national median new home price will drop by 5.9% this year to $430,800, and improve by 3.5% next year to $445,800.
Taken all at once, this data shows the importance of being able to “move” quickly if market conditions become favorable to your specific economic circumstance. But this data also shows that it might be more beneficial to wait before entering the market if that’s a possibility. One constant is the need to consult a REALTOR® for your homebuying needs. With their advanced tools and expertise, utilizing the services of a REALTOR® is the best way to protect your most valuable investment. REALTORS® work for their clients and communities every day. That’s Who We R®.