Mortgage bankers expect rates to fall to 5.4% in 2023. What will house prices do?

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NASHVILLE, Tenn. — High mortgage rates and recession fears are weighing on home prices, so expect steady growth this year, an expert says.

“Our forecast is that the moderation in house price growth will continue,” Joel Kan, vice president and deputy chief economist of the Mortgage Bankers Association, said Sunday at the organization’s annual conference in Nashville. Tennessee.

Home prices have already started to moderate. According to Case-Shiller, home prices fell month-over-month from June to July for the first time in 20 years. The latest figures, which will concern the month of August, will be communicated on Tuesday morning.

With a likely recession in the cards, in addition to mortgage rates near or above 7%, “we’ve already seen a pretty dramatic pullback in housing demand,” Kan said.

Also see: Mortgage industry group predicts recession next year and expects mortgage rates to drop 7%

The 30-year fixed rate averaged 6.94% last week versus 3.85% a year ago. The MBA also expects rates to fall to 5.4% by the end of next year.

So expect national house price growth to “level off” in 2023 and 2024, he said. That could be a “silver lining” for some, Kan added, as it brings home prices back to “more reasonable levels.”

A flattening of house price growth should allow households to catch up, in terms of wages and savings, to afford homes that are currently too expensive.

But he also warned that some markets could actually see house prices fall. We’re already seeing home values ​​plummet in some markets, from pandemic boomtowns like Austin and Phoenix to well-known expensive towns in the San Francisco Bay Area.

Still, even with price cuts, don’t expect inventory to rise as people sit on their ultra-low mortgage rates that they probably won’t enjoy in the near future.

According to June data from the Federal Housing Finance Agency, nearly a quarter of homeowners have mortgage rates of 3% or less. And the vast majority of owners — 93% — have rates below 6%.

On top of that, the supply is also likely to be stretched.

Sellers are said to be ‘on strike’ and not selling their homes as they see others forced to cut list prices to woo buyers. Builders are also spooked, signaling plans to slow new construction.

Nevertheless, housing demand should eventually pick up as many people will soon need their own homes.

MBA’s Kan estimated that there are 50 million people in the 28-38 age bracket, some of whom – or many – are likely to become potential homeowners in the future.

For those under 35, the homeownership rate is only 39%, Kan said, while that share increases for those aged 35 to 44, to 61%.

So as people age, “we’re pretty confident if we stick with these trends, you’ll see a very supportive demographic driver of housing demand for a good number of years,” Kan said.

Do you have ideas on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at [email protected]

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