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- High mortgage rates have put a damper on housing-market activity.
- The softness could persist into 2024, when rates are expected to remain near 7% on average.
- CoreLogic’s latest list of areas with the most upside includes Glen Falls, NY and Anchorage, AK.
The 10-year Treasury note yield, a closely watched benchmark for several borrowing costs, jumped above 5% in October as investors feared the Federal Reserve would keep rates higher for longer.
The impact of rising yields quickly spread to real estate, pushing the average 30-year fixed mortgage rate above 8%. It was 7.18% on Wednesday.
“It’s definitely putting a damper on housing market activity,” said CoreLogic’s chief economist, Selma Hepp. “Even before mortgage rates went up to 8%, we saw significant slowing in home sales activity, and some recent reports pointed to a 12-to-13-year low.”
Not only are higher interest rates discouraging buyers, but sellers are choosing to stay in their homes in order to keep their lower rates. Due to a lack of inventory, the gridlock has kept home prices stable, even raising them in some areas. However, Hepp believes that as long as mortgage rates remain high, demand will fall and home prices will begin to fall on a monthly basis.
This means that things could improve next year: a drop in prices, combined with the expectation that mortgage rates will gradually begin to fall in the spring or by June 2024, is expected to lead to an increase in home sales activity. Consumers tend to respond quickly when interest rates fall, especially when there is a lot of pent-up demand, she said.
However, mortgage rates are determined by the federal funds rate. The dot plot, which depicts Fed officials’ expectations, shows the rate in 2024 ranging between 4.6% and 5.4%. Following this trend, CoreLogic indicators predict that mortgage rates will be around 6.3% by the end of the year. However, after mortgage rates reached 8% in October, Hepp believes it will take longer for them to fall, and that forecast should be revised to 6.5% to 6.8%.
Despite the current slowing of the market, houses in a few metro areas and neighborhoods are expected to appreciate in value. CoreLogic predicts that 20 metro areas will have seen the most year-over-year appreciation in September 2024 compared to this September.
When Hepp reviewed the list, he noticed a few recurring themes. For example, markets that were expected to decline further following the pandemic, such as the California coast, are actually recovering quite strongly. At the same time, less expensive Midwest markets that did not experience significant price increases during the pandemic are catching up and experiencing home-price appreciation. Buyers are also looking for states with tax breaks, according to her.
The list’s data is based on CoreLogic’s Home Price Index, which uses data from public real-estate records and more than 45 years of repeat-sales transactions to determine single-family home price trends. Forecasts are based on a variety of factors such as home prices, the unemployment rate, real disposable income per capita, and population growth.