How will rising interest rates affect the housing market in 2023? Experts weigh in

During the height of the COVID-19 pandemic, the Federal Reserve kept interest rates at historically low levels, and this meant home buyers could borrow money at incredible rates.

Now, experts say the housing market looks completely different compared to the last two years of extraordinary performance, causing house hunters to grapple with suddenly high prices, rising house prices and a tight supply of properties on the market.

“It has changed,” said Lawrence Yun, chief economist at National Association of Realtors (NAR), told the FOX Television station. “Mortgage rates have more than doubled and limited the ability of homebuyers to get a mortgage.”

High mortgage rates affect the housing market

The feds recently announced another aggressive rate hike – the third consecutive increase of three-quarters of a percentage point and the sixth rate hike this year alone.

It’s a streak that’s done mortgages and other consumer loans are more expensive and heighten the risk of a recession.

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A house is seen with a “For Sale” sign on July 25, 2005 in Pasadena, California. (Credit: David McNew/Getty Images)

“Interest rates have increased at the fastest rate in four decades and they are at 20-year highs. As a result, interest-sensitive sectors of the economy such as housing, cars, appliances, furniture, etc. have materially declined. Sam Khater, vice president and chief economist of the Division Freddie Mac Economic and Housing Research, told FOX.

Average speed in a The mortgage remains for 30 years – which is only 3.14% a year ago – surpassed 7% at the end of last monthFreddie Mac mortgage buyers reported, the first time in two decades.

According to New data released Friday by NARThe monthly mortgage payment on a typical single-family house with a 20% down payment is $1,840 – up to 50% year-over-year.

And, as a result, mortgage rates, which are the lifeblood of most home purchases, have rapidly reduced the pull of eligible buyers.

“It definitely has an impact on the housing market, there’s no question about that,” Jon Grauman, founder and agent at the Grauman Rosenfeld Group in Beverly Hills, California told FOX.

Grauman and other experts say rising prices are also reducing the number of home sales on the market.

According to the NAR, US pre-owned home sales fell in September for the eighth consecutive month, matching the pre-pandemic sales pace of 10 years ago.

Housing market project in 2023

But even though the number of sales has fallen as mortgage rates have risen, experts say home prices are still rising or holding steady in many parts of the United States.

“Many people think interest rates are going up so housing prices are going to wither or fall off a cliff. That’s actually not what’s happening,” explained Grauman.

Related: The Fed posted a fourth 75-basis rate hike, which could slow down quickly

The difference this time, Grauman says, is a matter of supply and demand.

Sellers are less motivated to sell in an economy with high interest rates, so with so few properties on the market, experts say this helps push home prices higher, even in a slowing market.

“Even though there are less transactions going on, we haven’t really seen much of a dip in house values, and frankly, I don’t anticipate that we will,” Grauman continued.

But as a market transition, most experts agree that the strength of the housing market in 2023 will depend on mortgage rates next year.

If mortgage rates start to fall next year, Yun believes we will see an increase in home buyers looking to get back into the market. However, if mortgage rates continue to remain elevated, this will lead to more sluggish market conditions and slowing sales.

Sentiment Khater similarly noted that if the economy slows down in 2023 due to a higher rate environment, this will weaken the housing market even more.

“Changes in interest rates have a long and variable impact on the housing market. The housing market has not yet felt the full impact of the latest increase in rates over the last few months, so I expect home sales and home prices to remain weak throughout 2023,” said Khater.

Related: The Federal Reserve raised interest rates by three-quarters of a point

One thing that may not change in 2023 is rising US home prices due to the economy’s limited supply of inventory.

New data shows single-family home sales prices rose in nearly every metro area measured — 181 of 185 — in the third quarter of 2022, the NAR revealed Friday. The national median single-family home price rose 8.6% from a year ago to $398,500.

“Right now, I think the market is still trying to find its footing – it’s literally sliding under our feet,” Grauman said, adding, “What people are waiting for is this, kind of, new wave of inventory to help balance the market, and I hate to be the bearer of bad news, it won’t come.”

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