Last week saw the release of the CoreLogic S&P Case-Shiller Index, which was down from its December peak but still up 5.8% year over year. Chief economist Selma Hepp notes that despite recent price growth declines, the annual average home price growth in 2022 was the second highest on record:
Source: CoreLogic (February 2023)
Looking forward, the housing market outlook remains uncertain, especially given the continued volatility in mortgage rates and persistent inflation pressures, both of which will weigh on the Federal Reserve’s future actions. Nevertheless, homebuyer response to falling mortgage rates has been noticeable in early 2023 and illustrates the impact of mortgage rates in unthawing the housing market.
Price declines were seen more prominently among major metros in the U.S., with San Francisco and Seattle showing the largest declines (16% and 15%).
Source: CoreLogic (February 2023)
George Ratiu of Realtor.com comments on the CoreLogic data, noting that more listings are coming online, but buyers are still holding back due to rising rates. This is putting downward pressure on prices. This may result in longer-term downward price adjustments as sellers become more motivated.
Monetary tightening will continue to exert upward pressure on mortgage rates, keeping many buyers on the sidelines. Looking at the spring homebuying season, the big question on shoppers’ minds is centered on how much further will prices adjust to compensate for the elevated borrowing costs and lagging incomes. The short answer—in light of declining sales—seems to be that there is still room for further downward price adjustments.
Nicole Bachaud of Zillow also comments on the release, highlighting that although January saw an increase in home-buying activity due to a recent slight drop in rates, that is likely to come to an end as the Fed continues to signal higher rates due to elevated inflation and strong economic data.
Mortgage rates are going up. According to Freddie Mac, the current average 30-year mortgage rate is 6.65%, up from a low of 6.09% just one month ago.
Source: Realtor.com (March 2023)
And, all signs point to higher rates, according to Matthew Graham of Mortgage News Daily. Adjusted for fees and lag time, Freddie’s rate should be closer to 7%, with the average lender now back into the low 7% for a “well-qualified 30-year fixed scenario.”
Dana Anderson of Redfin comments on 7% rates, noting that “[t]he median U.S. home-sale price declined 0.6% year over year in February, marking the first annual drop since 2012–but high rates mean homes aren’t more affordable. The milestone comes as daily average mortgage rates hit 7.1%, dampening homebuying demand.”
This has dramatically increased borrowing costs, which is putting downward pressure on home-buying activity and prices.
Source: Redfin (March 2023)
George Ratiu of Realtor.com comments on rising rates, noting that “[w]hile mortgage rates declined in January, giving many buyers hope that affordability may improve, they are on the rise again, and could even crest 7% again in the next couple of months. For real estate markets, the rise in rates means higher mortgage payments, deepening the affordability challenge just as we move into the crucial spring homebuying season. For the buyers of a median-priced home, today’s rate is translating into a $2,132 monthly payment, 49% higher than last year.”
For more on what this means for the housing market, check out James Kleimann and Flávia Furlan Nunes’s HousingWire article.
Apartment List recently released its monthly rent data report showing that, surprisingly, there was a 0.3% month-over-month increase in national rents in February, snapping the streak of five straight month-over-month declines.
Source: Apartment List (February 2023)
Despite the increases in national rents, there are still signs of caution in the market, according to Apartment List.
Even as rent growth has turned positive again, we continue to see easing on the supply side of the market. Our vacancy index now stands at 6.4 percent, its highest reading in two years. With a record number of multi-family apartment units currently under construction, we expect that supply constraints will continue to soften. 2023 could be the first time since the early stages of the pandemic that we see property owners competing for renters, rather than the other way around.
A new report from Origin Investments forecasts that for the remainder of 2023, year-over-year apartment rent growth nationally will be -2%. According to the firm, this will be the fourth largest rent decline in U.S. history, “behind only World War I, the Great Depression, and the Great Financial Crisis.” According to Origin, the primary factor affecting negative rent growth is the rapid delivery of new units at a pace not seen since the 1970s, and improving rental affordability compared to purchasing, also not seen since at least the 1970s.
Realtor.com’s monthly rent report highlights that January marked the twelfth consecutive month of slowing rent growth, with increased rent growth in the less expensive rental markets like Indianapolis (10.5%); Birmingham, AL (8.8%); and Columbus, OH (8.3%).
Finally, Zumper released its national rent index showing that rents remained flat across the board, “pointing to a possible inflection point between supply and demand following several months of near-flat rent increases.” One-bedroom rentals were unchanged (0%) from January 2023, sitting at an average of $1,492 per month, and 2-bedroom rentals increased only 0.1% to $1,824. That said, year-over-year rent growth is still in positive territory, although decelerating.
Source: Zumper (March 2023)