The biggest shock to homebuyers is the soaring mortgage rates of 2022 that doubled in one year resulting in approximately 15 million mortgage ready buyers displaced from the market due to affordability issues.
As of February 23, 2023, the 30-year fixed rate mortgage was at 6.5%. While that is twice as high as it was on January 6, 2022, it is still lower than the 7.75% average rate since April 2, 1971, according to the Freddie Mac Primary Mortgage Market Survey.
When rates increase at a rapid pace like this, it takes time for the public to adjust and begin to accept it as the new normal.
Prior to the housing bust that led to the Great Recession, the normal for mortgage rates was in the 6% range and existing home sales were over 6.5 million for three years. From 2007 to 2014, home sales were closer to 5 million with 2008-2011 at just above 4 million annually.
From January 17, 2008 to March 5, 2020, mortgage rates averaged 4.32%. In this 12-year period, buyers experienced some of the lowest mortgage rates ever and became to expect that rates would always be that low.
Then, during the hardest part of the pandemic, the government took unprecedented actions to influence rates even lower to where they averaged 3.06% between March 5, 2020 and March 17, 2022.
It appears that mortgage rates have peaked in this latest cycle. In December 2022, the rates came down for four straight weeks following two weeks of slightly higher rates. The question is what to anticipate for 2023.
The National Association of REALTORS® is expecting mortgage rates to be below 6% in the last half of 2023 possibly, 5.5% to 5.7%. Zillow's chief economist believes rates will drop to around 5.5% for 2023. The Mortgage Bankers Association expects that "30-year mortgage rates will end 2023 at 5.3%." Fannie Mae forecasts rates will end 2023 at 5.7%.
Relying on the experts, rates are not going to return to the unusual levels during the pandemic or even in the past 12-14 years. The new normal may well indeed be at the mid-5% level and when the public gets use to it, sales will begin to rise again.
Some buyers may need to adjust their price points because higher payments are directly impacted by the higher rates. Even if they could have afforded more with the lower rates, that was a missed opportunity. When the Fed gets inflation under control and the market rebounds from the pent-up demand, another window could be lost.
David Stevens, CEO of Mountain Lake Consulting, and former Assistant Secretary of Housing recently said in a LinkedIn post talking about the housing market in 2023 "So be advised...this may be the one and only window for the next few years to get into a buyers' market. And remember...as the Federal Reserve data shows...home prices only go up and always recover from recessions no matter how mild or severe. Long term homeowners should view this market...right now...as a unique buying opportunity."