2024 Housing Forecast: What to Expect with Rates, Prices, and the Economy

It started with a continuation of negative trends from the end of 2022 and turned into the least affordable year for home buying on record. But even though high mortgage rates resulted in a severe drop in home sales, they also kept a lot of would-be sellers “locked in” to their low mortgage rates, and home prices continued to rise throughout the year as a result.

At the end of the year, activity slightly increased as positive inflation signals brought rates down. But will that continue as we move into 2024? And if it does, will more homebuyers enter the market? How will that increased demand impact home values?

To help with this analysis, we turned to Barry Habib and MBS Highway The data below is pulled from their 2024 Housing Forecast report.

Mortgage Rates

First things first, mortgage rates. While we expected mortgage borrowing costs to fall in 2023, they defied expectations and ended up reaching multi-decade highs.

Rates began the year 2023 on a downward slope, but quickly reversed course and surpassed 7% by spring. Things got even worse as rates climbed beyond 8% in October.

However, inflation has since cooled and economic reports continue to signal that the worst of it could be over.

The Federal Reserve has also gotten on board, and they are very optimistic about rate cuts in 2024. After raising rates 11 times in less than two years, there could be three or more cuts next year.

While the Fed doesn’t directly control mortgage rates, their monetary policy tends to correlate. As they cut rates in the face of a cooling economy, mortgage rates should also fall.

We anticipate 30-year fixed rates to decrease throughout the year, possibly reaching as low as the mid-5% range by December.

The way things are going, it could come sooner. And rates could go even lower, potentially dropping into the high-4% depending on loan product and qualification factors.

2024 Rate Forecast

30 Year Fixed Rate Mortgage

• Mid-5% to High-6%
• Under 6% should unlock move-up buyers

10 year Treasury

• 3% to 4.4%
• Return to more normal spreads could cause mortgage rates to drop further.

Mortgage Rates Decline During Recessions

There were about $1.3 trillion in home purchase loan originations during 2023, despite it being a slow year. And rates have since come down quite a bit from what will likely be the highest point in this cycle.

Considering all those high-rate mortgages that funded over the past two years, we’re confident there will be a large pool of homeowners who will benefit from refinancing their current loans and see substantial savings on their monthly payments.

In addition, we might see homeowners tap equity via a cash out refinance if rates keep coming down and get closer to their existing rate.

Home Prices

Lately, there’s been a lot more optimism in the real estate market thanks to easing mortgage rates.

Housing inventory hit historic lows during the pandemic and a lack of supply has been a major constraint on the housing market. Supply has continued to remain low largely because of the “rate lock-in” effect.

Many homeowners who likely would have listed their homes for sale decided to stay put last year because of their ultra-low rates. Nationally, more than 60% of homeowners with a mortgage have an interest rate below 4%.

However, we believe supply will loosen up in 2024. Even homeowners who have been locked in to low rates will increasingly find that changing family and financial circumstances will lead to more moves and more new listings over the course of the year, particularly as rates move closer to 6%.

More new listings will add to inventory, though overall supply will likely still remain low. This will continue to put upward pressure on home prices.

Between 2019 and 2022, the median home price nationally rose by more than 40%, or by about 13.7% annually, a much faster past of price appreciation than during a typical market. Strong demand during the pandemic, fueled by historically low mortgage rates and increased savings, drove up home prices.

Home price growth moderated in 2023, but still saw higher-than-average increases thanks to persistently low supply in the market. CoreLogic’s latest Home Price Insights report shows that prices were up 5.2% year-over-year in November 2023.

Looking ahead, several factors will push and pull at home prices. More inventory will be generally offset by more buyers in the market. As a result, we believe homes prices will rise at a similar pace they did in 2023 at an annual rate of 4.5-5%.

2024 Real Estate Forecast

Nationwide Appreciation

• 4.5% to 5%

Transaction Volume

• Up 15% – 20%

The Bottomline

In 2024, we expect mortgage rates to drop closer to 6% in the wake of easing inflationary and less restrictive monetary policy.

These lower rates will bring more activity into the market. Demand will continue to overwhelm supply, and we believe we will see low-single digit appreciation throughout the year.

We are confident that the housing market will remain steady in 2024 and beyond, and that real estate will continue to be a safe investment and a great way to build wealth.

If you would like to know if homeownership is a possibility for you this year,give us a call. Let’s discuss your questions about the state of the housing market, and help you put together a plan to get a great deal on a home and start building wealth through home equity when the time is right.

Over the past decade, homeownership costs have skyrocketed, posing affordability challenges amidst soaring home prices and high mortgage rates. Did you know that beyond mortgage payments, US homeowners spend an average additional $17,459 yearly?

However, these increased expenses give homeowners the opportunity for potential tax benefits that can significantly boost your tax refund come filing season.

Understanding these potential tax advantages is pivotal for homeowners aiming to maximize their tax refund. Here’s a breakdown of key homeowner tax breaks and credits available in 2024 to ensure you claim every possible deduction and savings opportunity.

How Do Homeowner Tax Breaks Work?

Most homeowner tax breaks come in the form of deductions, reducing your taxable income. When filing your return, you choose between the standard deduction or itemizing deductions like charitable contributions and state taxes.

To take advantage of homeowner tax deductions, you’ll need to itemize your deductions using Form 1040 Schedule A. Your decision to itemize will depend on whether your itemized deductions are greater than your standard deduction. All of the best tax software can quickly help you decide whether to itemize (as well as help you fill out all of the tax forms mentioned in this article).

Tax credits, on the other hand, directly lower your tax liability without requiring itemization. They offer savings opportunities while allowing you to simplify your taxes with the standard deduction.

Key Tax Advantages for Homeowners in 2024

Mortgage Interest Deduction

Mortgage interest is a prevalent tax deduction for homeowners, especially beneficial for new homeowners, as their initial mortgage payments primarily cover interest.

For joint filers, deductions apply to mortgage interest payments on loans up to $1 million or $750,000 for loans made after Dec. 15, 2017.

Single filers can claim half these amounts – $500,000 or $375,000, respectively.

To claim this deduction, use IRS Form 1098 provided by your lender in early 2024, entering the amount from Line 1 onto Line 8 of 1040 Schedule A.

Mortgage Points Deduction

Mortgage points, known as “discount points,” are purchasable to lower mortgage interest. Typically, for every 1% of the mortgage amount paid beyond the down payment, home buyers can reduce their interest rate by around 0.25%, the exact reduction varying based on the lender and loan terms.

Investing in discount points can yield significant savings on a 30-year mortgage, diminishing total interest payments over the loan term. Moreover, they offer tax advantages upon purchase. The IRS categorizes mortgage points as prepaid interest, enabling their inclusion in the total mortgage interest reported on Line 8 of 1040 Schedule A.

Mortgage Interest Credit

Homeowners holding a Mortgage Credit Certificate (MCC) from a state or local government, typically obtained through a mortgage lender, can receive a tax credit on a portion of their mortgage interest payments. The credit rate varies by state, ranging from 10% to 50%, capped at a maximum credit of $2,000.

This tax-saving strategy is especially advantageous for first-time homeowners, defined as individuals not owning a home for the past three years. If you’re a first-time buyer, consult your lender or mortgage broker to determine MCC eligibility.

To claim the mortgage-interest tax credit, utilize IRS Form 8396. Notably, itemizing deductions is unnecessary to claim these tax credits.

Property Tax Deduction

Property taxes, also known as local and state real estate taxes, remain deductible from your taxes, albeit with revised limits post-2017. Thanks to the Tax Cuts and Jobs Act of 2017, deductions are capped at $10,000 for combined property taxes and state/local income taxes. Previously, before 2017, the entire property tax amount was deductible.

To claim your property tax deduction, meticulous tracking of annual property tax payments is essential. These taxes might be detailed in Box 10 of Form 1098 from your mortgage lender. Record the total real estate taxes paid for the year in Line 5b of 1040 Schedule A to claim this deduction.

Home-Office Deduction for Self-Employed

Individuals utilizing a portion of their residence exclusively and routinely for personal business or side ventures qualify for home business expense deductions using IRS Form 8829. Renters can also benefit from these deductions.

The simplest approach to claim a home-office tax deduction is through the standard home-office deduction, calculated at $5 per square foot used for business, up to 300 square feet. Alternatively, the “regular method” involves determining the percentage of home space utilized for business. Both methodologies involve reporting through Form 8829.

Notably, remote employees of companies aren’t eligible for home-office deductions.

Energy Efficiency and Clean Energy Credits

If you made energy-efficient enhancements to your home in 2023, there’s a possibility of receiving tax credits, though the process can be intricate. These credits encompass two categories: the residential clean energy credit and the energy efficient home improvement credit.

The residential clean energy credit refunds 30% of expenses incurred from installing solar electricity, solar water heating, wind energy, geothermal heat pumps, biomass fuel systems, or fuel cell property. However, there’s a cap for fuel cell property – $500 for every half-kilowatt capacity.

The energy-efficient home improvement credit, also termed the nonbusiness energy property credit, divides into “residential energy property costs” and “qualified energy efficiency improvements.” The former offers a flat tax credit ranging from $50 to $300 for Energy Star-certified installations like heat pumps or water heaters. The latter provides a 10% tax credit for improvement costs such as insulation, roof repairs, or window replacements.

Previously capped at $500 for all improvements, the energy efficient home improvement credit now holds an annual limit of $1,200 from the 2023 tax year, thanks to the Inflation Reduction Act.

To claim tax credits for energy-efficient home improvements made in 2023, maintain records of costs and report them using IRS Form 5695.

Home Equity Loan Interest Deduction

Interest from a home equity loan or second mortgage qualifies for tax deductions akin to regular mortgage interest, but with a crucial caveat: maximum loan totals are capped at $1 million or $750,000 (for joint filers) for homes purchased after Dec. 15, 2017.

It’s imperative to emphasize that the 2017 tax law restricts deductions for home equity loan interest solely to funds utilized for “buying, building, or substantially improving” homes. Using the loan for other purposes like purchasing a car or funding vacations negates eligibility for deductions.

If the interest paid on a home equity loan was directly invested in your residence, you can claim the deduction alongside mortgage interest and points. Report this deduction on Line 8 of Form 1040 Schedule A.

Upon selling a home, taxes are levied on the earned amount as capital gains. However, residing in the home for two of the past five years before selling unlocks a substantial tax exclusion – $500,000 for married joint filers or $250,000 for single or separate filers.

This tax exclusion is universally available to all Americans, irrespective of age or prior benefit utilization. Notably, residency requirements pertain regardless of homeownership. For instance, if you rented a house for two years before purchasing it, you’re eligible for the standard residence exclusion upon selling.

Typically, you’ll receive tax information concerning the home sale through a 1099-S form. Report your ultimate gain, applying the $500,000/$250,000 exclusion, on IRS Form 8949. However, if you don’t receive a 1099-S form and your house’s profit falls below the exclusion limit, no reporting of the sale on your taxes is necessary.

Which Home Expenses Are Not Tax Deductable?

Despite all the tax breaks available for homeowners, there are some home-related expenses that can’t be deducted from your income.

• Your down payment for a mortgage
• Any mortgage payments toward the loan principal
• Utility costs like gas, electricity and water
• Fire or homeowner’s insurance
• House cleaning or lawn maintenance
• Any depreciation of your home’s value

Conclusion

From mortgage interest and property taxes to necessary home improvements and home office expenses, homeowners can potentially reduce their tax liability. Be sure to consult with a tax professional for personalized advice and to stay updated.

However, it’s important to stay updated on the latest tax regulations, income limitations, and qualifying criteria. By taking advantage of these deductions, you can make the most of their tax benefits and potentially save more money in the long run.

Owning a home is a crucial part of finding financial freedom, but deciding when to make the move into homeownership is never an easy decision. That decision is especially hard today with home prices and mortgage rates at record highs.

Buying a home now would likely come with a housing payment that is significantly higher than you would like. But waiting to buy until next summer, or until rates drop, will likely mean more competition, higher home prices, and less ability to negotiate on your purchase.

This is where the no-cost refinance comes in. While mortgage rates are high, many homebuyers have chosen to buy now and refinance for free later. This gives you the ability to jump into homeownership now, immediately benefit from paying down your mortgage balance, lock in your home price, and eliminate the gamble that home prices and mortgage rates will fall at the same time (spoiler alert: they never do.)

An economic recession is all but inevitable now, despite the government stimulus that delayed for much longer than expected. When the economic slowdown comes, mortgage rates will drop and allow those who bought at higher rates to refinance into much lower rates – usually at no cost.

Understanding Refinance Closing Costs

Closing costs are the dollar amounts it costs to get a mortgage done. There’s an appraiser, loan processor, underwriter, title or escrow officer, recording fees, credit reports, transfer taxes – you get the point. There are a lot of parties involved in writing a mortgage, and everyone needs to get paid. This is true whether you’re buying a new home or refinancing an existing mortgage.

Typically, there are three different buckets of costs or fees associated with refinancing a mortgage:

• Lender fees are the costs associated with taking your loan from application to closing. While these kinds of fees typically include an application fee, credit report fee, origination fee, processing fee, and an underwriting fee, the full list of what you pay will vary depending on the lender you choose.
• Title fees are the third-party costs associated with the sale of the property or refinance of the loan. You might also hear these called escrow fees depending on where you live. The amount and type of title fees you pay will vary depending on the state and property type, but typically include the costs associated with title insurance, attorney fees, settlement fees, recording fees, etc.
• Prepaids are the upfront payments that need to be made to cover certain expenses in advance. Prepaids commonly include monthly homeownership expenses like homeowners’ insurance premiums, property taxes, and any mortgage interest that accrues on the loan from the closing date through the end of the month before your first payment.

What is a No-Cost Refinance?

When a lender advertises a no-cost refinance, they are saying they will offer you a credit to offset the lender, title, and other third-party fees. This is usually done in exchange for a slightly higher interest rate than you would receive if you chose a traditional refinance and paid all your closing costs out of pocket.

With most no-cost refinances the only costs you will be responsible for are the prepaids. These costs can vary widely depending on the location of your property (for property taxes) and when you close your loan (for prepaid interest). You can either pay these upfront costs when you close, but often your lender can roll them into your new loan amount, so you truly do not have to pay anything out of pocket.

This might make you question the “no-cost” part of your refinance, but prepaids are not really considered closing costs. Even if you did not refinance, you would still be paying property taxes, homeowner’s insurance, and mortgage interest. Getting a new loan just means you pay a few months’ worth of these costs upfront to get your escrow account funded with enough to pay taxes and insurance when due.

Keep in mind you will also likely get a refund from your previous mortgage escrow account. When you refinance, your original loan is completely paid off, and any balance you had left in that escrow account will be refunded to you in the form of a check issued by your old mortgage servicer typically within 30 days. You could always put that escrow refund from our previous loan, to work by paying down the balance of the new loan.

When Should You Consider a No-Cost Refinance?

In a market where rates are expected to go down, no-cost refinance is one of the savviest tools you can use to save money both short and long term.

If you bought a home today, it’s very likely that you will have multiple opportunities to refinance your loan and capture savings before rates settle at their cyclical bottom.

If you refinance and pay closings costs, then refinance again as rates continue to drop, it’s likely you won’t have recouped all the closing costs from the initial refinance.

Let’s say you bought a home today, and six months from now you can refinance and save $250 on your monthly payment. Assuming you added the closing costs of $8,000 into your new loan, you would have to keep your loan for 32 months to breakeven. If you refinance again any time before that, you will have lost money.

A no-cost refinance eliminates this risk, even if the rate for the no-cost refinance is a little higher. Let’s say the monthly savings are only $200. With $0 closing costs, even if you refinance again in one year, you will have saved $2,400.

The Bottom Line

In today’s market where interest rates are expected to fall considerably, a no-cost refinance can be a simple and risk-free way for homeowners to save money.

While rate is certainly an important consideration, along with the term of your loan, a no-cost refinance can eliminate the risk of paying double or even triple closing costs in a market where rates decline substantially.

Nobody knows where the bottom of the market is, or what the lowest rate will be in the future, but if the savings make sense and you can get those savings without costs, a no-cost refinance can be a great way to reduce your monthly payment and save you money.

At Luminate Home Loans, our goal is to make sure you know exactly the rate at which it makes sense to do a no-cost refinance. Our mortgage advisors constantly monitor your loan relative to the current market conditions, and whenever there is enough of a benefit for you, we will proactively reach out to you and offer to refinance your loan at the most advantageous loan structure possible for your unique situation.

This is what we like to call our Mortgage Under Management strategy. Where we constantly keep eyes on your existing loan, relative to what rates are available in the market, so you never have to worry if you are in the best possible mortgage. If we are doing our job right, the closing of your first home loan with us, is where our relationship begins.

Earlier this week, an article was posted to fortune.com with this headline:

The housing market is headed back to a 1980s-style recession, Wells Fargo says—and it’s all because of ‘higher for longer’ mortgage rates

On first read, this clearly sounds like a warning that home prices are going to fall because of high mortgage rates. But if you actually read the article, you would find a different story:

The bank expects worsened affordability in the near term as mortgage rates remain elevated, which will in turn weaken housing activity. Home prices will continue to appreciate at a slightly slower pace because of underlying demand and tight supply, rising 1.8% by the end of this year, as tracked by Case-Shiller, and 2.5% in 2024. In 2025, Wells Fargo forecasts home prices will rise 4.4%.

The article even painted a positive picture for the near-term future of mortgage rates:

Assuming Wells Fargo’s forecast that the Fed has finished hiking interest rates and will lower them next year is accurate, mortgage rates should also move lower…The average 30-year fixed mortgage rate would finish off this year at 6.94%…Next year, the bank forecasts the average 30-year fixed mortgage rate will be 6.39%—and in 2025, it’ll sink lower still, to 5.70%.

So, headlines today sound like the housing market is heading into a massive recession, but mortgage rates are forecasted to go down and home prices are forecasted to go up. What gives?

Yes, we are experiencing a housing recession today, but it is not a recession of home PRICES – it is only a recession of ACTIVITY in the market.

Home prices and mortgage rates do not have an inverse relationship, like most people believe. Just look at history and you’ll see that it’s perfectly normal for home prices and interest rates to rise simultaneously. This is not a new phenomenon.

However, home sales definitely slow down when the cost of financing rises. That is the ‘housing recession’ we are experiencing today.

Why Home Prices Still Rise When Rates are High

Even though mortgage rates are more than double what they were three years ago, home prices are still rising. According to the most recent CoreLogic Case-Shiller Index, prices rose 0.4% in August and were 2.6% higher than a year ago.

How could home prices outperform with mortgage rates rising?

More jobs and increased wages, combined with a low-interest rate environment, increased the money circulating in the economy and led to a lot more consumer spending and an increase in prices. Home prices were not immune to this.
Unfortunately, this also resulted in high inflation, which is why the Federal Reserve has raised its own policy rate 11 times since early last year.

Inflation has cooled significantly, and the Fed paused rate hikes in its meeting on November 1st, but this economic strength has coupled with the severe lack of for-sale inventory to propel home prices higher.

High Rates Severely Affect Homebuying Activity

On the other hand, when mortgage rates increase significantly, home sales tend to take a big hit.
This happens for obvious reasons, the main one being a lack of affordability. Fewer home buyers can qualify when financing costs are prohibitively high. Homebuyers may have seen their wages increase and they may have good jobs, but they are dealing with higher costs of living because of inflation. They have probably taken on a lot more debt, as well, so their debt-to-income ratios are not as favorable.

Per Redfin, current home sales are down 11.9% from this time last year and are now at their lowest sales pace since October 2010. For reference, in June of 2021, home sales hit their highest level since 2006.

Meanwhile, the inventory of active listings has slowly been rising, but it is still down nearly 12% since this time last year.

But despite less demand and fewer buyers, the lower number of sales isn’t resulting in lower prices. Instead, we have a housing market with low demand and low supply and not a lot of budging from sellers on price.

Nobody is Selling, and There are Not Enough Homes Being Built

While there has been some debate about the mortgage rate lock-in effect, there’s no denying how strong of a force it is in today’s housing market when you look at the distribution of rates out there today.

Existing homeowners aren’t moving because their mortgage rates are so low. But it’s not only that they’re so low, it’s also the cost of replacement, with prevailing market rates now edging closer to 8%.

Why would these owners ever want to sell? Why wouldn’t they rent out their homes and enjoy the cashflow from rents that have been pushed higher due to inflation while benefitting from their 30-year fixed mortgage rates that are well below the real rate of inflation?

In a new survey from Fannie Mae, researchers argued that even if mortgage rates were to decline by a meaningful amount in the intermediate term, they would not expect to see a big surge in for-sale listings. They believe there are a “confluence of factors and trends contributing to the lack of housing inventory in the United States.”

Low-rate homeowners are keeping existing home supply out of the market, but builders are also having trouble bringing new homes to the market.

The Associated Builders and Contractors reports that building material costs have increased by 37.7% since 2020. Since 2022, lumber has come down in price by 12.3%, while concrete products have increased by 14.8%.

Builders still face significant labor shortages, too. While there’s not a shortage of projects, there’s an increasing challenge to find qualified workers to complete these jobs. On top of that, construction equipment prices are up by 12.2% since 2022.

As you can see from the chart below from census.gov, housing permits and starts have fallen quite a bit since last year, and completions have remained relatively flat. If permits and starts are falling, we will start to see completions fall in the coming months, as well.

As the Economy Slows, Rates Will Come Down

The chart below shows the average 30-year fixed-rate mortgage based on Freddie Mac data. The shaded portions are U.S. recessions.

During the Great Recession, which spanned from December 2007 to June 2009, rates started around 6% and fell to roughly 4.875%. That recession was caused by the mortgage crisis, and the loose home loan lending collapsed the global financial system.

In the early 2000s recession, from March 2001 to November 2001, rates began at 7.375% and fell to 6.75%.

In the early 1990s recession, from July 1990 to March 1991, mortgage rates fell from around 11% to 8.75%.

The prior recession, from July 1981 to November 1982, saw rates plummet from the record high of 18% down to 13%.

And the 1980 recession from January 1980 to July 1980 saw rates move lower from 16% to 11.75%.

In all instances, mortgage rates went down during and immediately following the recession. And what will happen when rates come down? We agree with what real estate mogul Barbara Corcoran recently said:

The days of the 2 or 3% interest rates are never going to come again. Forget about that, but they will come down. The minute they drop and come down to anything with a five in front of it, the whole world is going to jump back into the market, there’s going to be no houses around and prices are going to go up by 10% or even 15% — so don’t get out of the market.

The Bottom Line

Home prices will continue rising over the long term like they always have. The home you want is going to be more expensive a year from now. Buying today means you will be able to lock in your home’s price before housing costs increase even more. If interest rates do go down as predicted, you can refinance to a permanently lower rate.

And remember, because interest rates are high right now, fewer people are buying. This means you won’t have as much competition when you make offers, and it’s likely you will have some negotiating power to secure a lower price or seller credits to reduce your costs even more.

We understand that everyone’s situation is different. Before making any decisions on your homebuying plans, it’s crucial that you look at the numbers for your specific purchase scenario and financial situation.

If you would like to know more about your options for purchasing a home today, schedule a consultation with us. We will answer all your questions and create a detailed loan comparison so you can create a solution that is best suited to fit your needs.

By now, everyone knows that demand in the housing market has seen a bit of a slump as homebuyers hold back in hopes of improving affordability.

Home prices are still near all-time highs, and last week the average 30-year fixed mortgage rate hit a 23-year high. But despite this, there are still virtually no homes for sale – which is continuing to push up prices and affect affordability even more.

How is this possible? Most would assume that when homebuying costs skyrocket, demand would significantly drop, and more homes would flood the market. Yet here we are, looking at a housing market that has barely any for-sale inventory available.

Let’s dive into what got us here and what it might take to see more homes come to the market.

Why Are There No Homes for Sale Right Now?

The housing market is highly unusual right now, and it has been for a while. In fact, since the pandemic, the process of buying and selling a home really hasn’t been ‘normal’ at all.

The housing market came to a halt in early 2020 as the world stopped, but then took off like a rocket. 30-year fixed mortgage rates spent the entire second half of 2020 under 3% and demand for homes absolutely exploded.

This new demand from those who were waiting for homes to become more affordable collided with an already record-high wave of first-time homebuyers entering the market (the average age of a first-time homebuyer in the United States is 33-years old).

At the same time, current homeowners and investors took advantage of low rates to purchase second homes and investment properties in the hopes of profiting off the growing rental market (Airbnbs and short-term rentals were very popular).

This quickly depleted supply, which was already trending down thanks to a lack of new home building after the 2008 housing crash. When foreclosures and short sales skyrocketed, builders really pulled back on new construction for many years. They’ve been trying to catch up for the last decade, but it just hasn’t been enough to keep up with the growing housing needs of Americans.

Another unique issue affecting housing supply is a concept known as mortgage rate ‘lock-in’. Today’s homeowners have such low mortgage rates that they either won’t sell or they simply can’t sell and take on a more expensive housing payment at a higher rate.

And this isn’t just a small number of homeowners. Nearly two-thirds of all mortgages out there today have an interest rate below 4%, and nearly a quarter have a mortgage rate below 3%. Most of these homeowners will not budge and will continue to enjoy their low, fixed-rate mortgage for many years to come.

Housing Supply Is Still Near Historic Lows

Remember, it’s normal to see home price growth slow down as the year goes on. And that definitely doesn’t mean home prices are falling. They’re just rising at a more moderate pace. Redfin reported that new listings climbed 1.4% month over month in September, the largest increase since February 2022 on a seasonally adjusted basis. That’s a glimmer of relief for homebuyers, who for months have been waiting for more homes to hit the market.

Still, new listings dropped 8.9% on a year-over-year basis in September and remained far below pre-pandemic levels.

There were 435,00 new homes for sale at the end of September. At the current pace of sales, there is a 6.9 month’s supply. This means that if no more homes came on the market, it would take 6.9 months for every home to be sold.

However, according to census.gov, only 74,000 of those homes are actually completed. 262,000 are under construction, and 105,000 have not even started being built. When look at the pace of sales vs. homes that are completed – that ACTUAL available supply – there is only 1.2 months’ supply.

One-Third of Homes for Sale are New Construction

While existing homes, also known as previously owned or used homes, are hard to come by because of mortgage rate lock-ins, newly-built homes are taking over the market. In fact, newly built single-family homes for sale were up 4.5% year-over-year in June, while existing homes for sale were down 18%.

Roughly one-third of homes for sale were new builds, up considerably from prior years and well above the norm that might be closer to 10%. The National Association of Realtors (NAR) predicts that new home sales will increase 12.3% this year, and 13.9% in 2024.

Why are home builders seeing a big increase in market share? It’s mostly due to a lack of competition from existing home sellers. Builders don’t need to worry about finding a replacement property if they sell and seeing their mortgage payment increase like existing homeowners do.

Builders are also able to offer huge incentives such as rate buydowns, including temporary and permanent ones, along with lender credits to help cover closing costs. This allows them to sell at higher prices but makes the monthly payment more manageable for the buyer.

Will More Homes EVER Hit the Market?

This new reality of low housing supply is probably going to persist for the foreseeable future. After all, those with so-called golden handcuffs have 30-year fixed-rate mortgages. They can continue to take advantage of their cheap mortgages for the next few decades. This includes the second homeowners and investors who got in when costs were much lower.

Meanwhile, home builders don’t seem to be taking advantage of the low supply by building a lot. Even if they did, it probably wouldn’t make much difference (existing home sales typically account for around 85-90% of sales).

Many believe that economic turmoil and a recession will bring a lot more homes to the market, but that’s very unlikely for a couple reasons:

• Homeowners today have massive amounts of home equity. If they lose their jobs, it’s very likely they will be able to fall back on their home equity.
• Recessions always bring lower mortgage rates, and even if the economy takes a dive, there are still going to be people who remain employed and want to buy a home. Lower rates will bring those people into the market.

Should You Buy Now or Wait?

The answer to this question first and foremost depends on your financial situation. If you are not financially prepared to take on a mortgage payment today, you should wait to jump into homeownership until you can comfortably afford it.

However, if you have met with a mortgage advisor, ran the numbers, and have the room in your budget, you should buy a home now.

Housing prices will keep going up like they always have over the long term. The home you want is going to be more expensive a year from now. Buying today means you will be able to lock in your home’s price before housing costs increase even more. If interest rates do go down as predicted, you can refinance to a permanently lower rate.

And remember, because interest rates are high right now, fewer people are buying. This means you won’t have as much competition when you make offers, and it’s likely you will have some negotiating power to secure a lower price or seller credits to reduce your costs even more.

We understand that everyone’s situation is different. Before making any decisions on your homebuying plans, it’s crucial that you look at the numbers for your specific purchase scenario and financial situation.

If you would like to know more about your options for purchasing a home today, fill out the form below to schedule a consultation with one of our mortgage advisors. They will answer all your questions and create a detailed loan comparison so you can create a solution that is best suited to fit your needs.

Over the last week, there has been an increase in the number of news articles and talking heads warning that major home price declines are on the horizon.

This negativity is largely in response to the release of Zillow’s September 2023 Market Report. The report shows that typical U.S. home values fell 0.1% from August to September – the first month-over-month decline since February.

Despite what you may be hearing in the news, nationally, home prices aren’t falling. It’s just that price growth is beginning to normalize – and this happens every single year.

Here’s the context you need to really understand that trend.

What is Seasonality in the Housing Market?

Every year, transactions and prices tend to be above-trend in the summer while activity typically slows down in the winter. Seasonality plays an important role in the housing market since it has an impact on supply and demand.

During winter and the holiday season in particular, demand tends to slow because people are unlikely to want to move. Aside from colder and more unpredictable weather, people are also dealing with end-of-year deadlines, family obligations, taking time off for the holidays, and more.

In the summer, on the other hand, real estate activity tends to increase. Families will often wait until the end of the school year when there’s more free time to move, so they don’t have to uproot their kids in the middle of the year.

The chart below from jpking.com shows Total Home Sales and Median Home Sale Price from June 2013 – June 2021, and it illustrates that this ebb and flow always plays out with remarkable consistency.

The graph below uses data from Case-Shiller to show typical monthly home price movement from 1973 through 2022 (not adjusted, so you can see the seasonality):

As the data shows, at the beginning of the year, home prices grow, but not as much as they do in the spring and summer markets. As the market transitions into the peak homebuying season in the spring, activity ramps up, and home prices go up a lot more in response. Then, as fall and winter approach, activity eases again. Price growth slows, but still typically appreciates.

After several unusual ‘unicorn’ years, today’s higher mortgage rates helped usher in the first signs of the return of seasonality but muting homebuyer and seller activity. CoreLogic explains this in their September 2023 US Home Price Insights:

“High mortgage rates have slowed additional price surges, with monthly increases returning to regular seasonal averages. In other words, home prices are still growing but are in line with historic seasonal expectations.”

Why This Is So Important to Understand

In the coming months, you’re going to see the media talk more about home prices. In their coverage, you’ll likely see industry terms like these:

• Appreciation: when prices increase.
• Deceleration of appreciation: when prices continue to appreciate, but at a slower or more moderate pace.
• Depreciation: when prices decrease.

Don’t let the terminology confuse you or let any misleading headlines cause any unnecessary fear. The rapid pace of home price growth the market saw in recent years was unsustainable. It had to slow down at some point and that’s what we’re starting to see – deceleration of appreciation, not depreciation.

Even with the slowdown in the market, home values are still up considerably for the year. Depending on which report you look at, we are still on track to see between 5 and 8% cumulative appreciation for 2023.

Remember, it’s normal to see home price growth slow down as the year goes on. And that definitely doesn’t mean home prices are falling. They’re just rising at a more moderate pace.

Bottom Line

While the headlines are generating fear and confusion on what’s happening with home prices, the truth is simple. Home price appreciation is returning to normal seasonality.

What does this mean for you? If you can afford it, now is a great time to buy. The chances are very high that you will be able to get a great deal on a home and more favorable terms on your mortgage if you buy within the next few months. Once winter is over and we start to see some improvement in rates, competition will increase and prices will go up again.

Remember, wealth is not created by timing the market – it’s created by time IN the market. The sooner you buy a home, the sooner you will start building equity and be one step closer to financial freedom.

We understand how incredibly frustrating and disheartening the current mortgage rate environment is.

Everybody had a prediction going into Summer 2023 that mortgage rates would decrease. Unfortunately, the resilient U.S. economy, the Fed’s ongoing war on inflation, and a sharp rise in 10-year Treasury yields have kept rates higher for longer than we all expected.

But we are still optimistic that 2024 will bring lower mortgage rates and provide some relief for homebuyers!

If you are not ready to make a move just yet, here are 3 steps you can take now to prepare for when the time is right:

• Schedule a meeting with me. (even if you are not ready to buy!)

It’s always best to do this sooner rather than later. No credit check or application needed – we will just discuss your options and put a plan in place so you can move quickly when the time is right.

• Choose a loan program.

Every mortgage program has unique benefits and different requirements to qualify. If you learn about these now and choose the one that makes sense for you, you will have a solid roadmap for what you need to do to prepare for your purchase.

• Start improving your finances.

Once we’ve decided on the best mortgage strategy, the rest of the time will be spent here. Get your down payment in order, make sure you have all your income and asset documentation, pay off any debt you need to improve your credit score, and start planning for your new housing payment.

Preparation is key in this market! Starting the process early will make sure you are able to submit an offer on a home right away and lock in a lower rate when the time is right.

When is a good time to connect and start putting together your homebuying plan?

If you want to buy a home but are waiting for housing to become more affordable, you want to be paying attention to what’s going on with the economy.

The Federal Reserve paused rate hikes last week thanks to several indicators pointing towards a cooling economy:

• Core CPI is currently at 4.3% year-over-year, which has improved from the high of 6.6% in September of last year but still not near the 2% target.
• The number of job openings went down to 8.8 million in July from 9.17 million in June, which is the lowest since early 2021.
• The unemployment rate in August rose to 3.8% from 3.5% in July, which is still historically low but the highest it’s been since February 2022.

Even though progress is being made on slowing down the economy, many Fed members haven’t ruled out the possibility of additional rate increases this year and into 2024.

As we’ve written about many times before, mortgage rates always go down during and immediately following recessions. In most areas of the country, home prices are not going to fall because of the lack of supply and high demand. However, housing will become more affordable when the economy slows down, and mortgage rates fall as a result.

Can We Still Have a “Soft Landing”?

Many people are looking at that 1994 experience to anticipate what might lie ahead in the present day, but there are some major differences between 1994 and 2023. The autoworker strike, a possible government shutdown, the resumption of student loan repayments, higher energy prices, and higher long-term borrowing costs could affect the trajectory of the economy and inflation. The Federal Reserve has two goals: to keep inflation low and steady and to maximize employment. Right now, all it is focused on is bringing inflation down without forcing millions of people to lose their jobs. Unfortunately, it’s really difficult to do that when inflation has been so high.

The Fed is painting a very rosy picture about the economy, and it is still optimistic that the US will be able to achieve what economists are calling a ‘soft landing’. A soft landing today would mean the economy slows down enough to reduce inflation to near the 2% target without a recession. Basically, the Fed’s goal is to get the country to slow down on spending without putting millions of people out of work.

Has there ever been a truly soft landing after an aggressive monetary tightening policy like we are experiencing today? Yes, but only once. The only time that the Fed actually achieved a soft landing was in the mid-1990s.

In early 1994, the economy was still in recovery after the 1990-91 recession. By early 1994, the unemployment rate was falling rapidly, and inflation was just under 3%. But with the economy growing and unemployment shrinking rapidly, the Fed was concerned about future inflation and decided to raise rates preemptively.

During 1994, the fed funds rate increased seven times, doubling from 3% to 6%. Once the Fed saw the economy softening more than required to keep inflation from rising, it ended up cutting rates three times in 1995.

The result was successful, and the US economy was very strong for the next five years. Inflation was low and steady, unemployment continued to trend downwards, and real GDP growth averaged above 3 percent per year.

3 Recession Indicators We Are Watching

In 2022, predictions of a 2023 recession were widespread, but more recently those voices have been getting quieter. Larry Summers, the former Treasury secretary and a prominent skeptic of a soft landing, said in April 2022:

If you look at history, there has never been a moment when inflation was above 4% and unemployment was below 5% when we did not have a recession within the next two years.

The following three recession indicators have all predicted economic downturns with 100% accuracy, and they’re all in agreement on what happens next.

Inverted Yield Curve

The first surefire recession-predicting tool is the difference in yields (i.e., the “spread”) between the 10-year and three-month Treasury bond. – also known as the yield curve.

A healthy or normal yield curve is one where longer-term bonds have higher yields or interest rates than shorter-term bonds. For example, the 2-year Treasury might have a yield of 3% while the 10-Year has a yield of 4%.

Longer terms mean more risk, so investors demand higher returns. However, when a recession is expected, the yield curve is not normal and becomes inverted. This means shorter-term bonds have HIGHER yields than longer-term bonds.

The graph below shows the historical difference between the yields of the long-term 10-Year Treasury bond and the short-term 3-Month Treasury bond. When the line drops below 0, it means that shorter-term bonds are offering higher returns than longer-term bonds.

The gray bars in the graph represent U.S. recessions. As you can see, every time the yield curve has inverted, a recession has immediately followed – and right now the yield curve is the most inverted it has ever been. We take this to mean a recession is at our doorstep.

Real GDP vs. GDI

The gray bars in the graph represent U.S. recessions. As you can see, every time the yield curve has inverted, a recession has immediately followed – and right now the yield curve is the most inverted it has ever been. We take this to mean a recession is at our doorstep.

The second indicator is the difference between US gross domestic product (GDP) and gross domestic income (GDI). Stansberry Research did a great job illustrating this in their recent Morning Briefing.
For every dollar someone spends on a good or a service – such as a movie ticket, a new watch, or a haircut – another individual earns a dollar of income to deliver that good or service. GDP captures the spending side of these transactions. GDI captures the income side.

In a perfect world, GDP and GDI would be the same, but there is always some minimal difference because each is measured using different data sets and different sources.

When we see a large gap between GDP and GDI, it can be a warning sign for the economy. And the gap is larger than normal right now.

Leading Economic Indicators

The third recession indicator that’s been spot-on when it comes to forecasting U.S. recessions since 1959 (or 64 years ago) is the Conference Board Leading Economic Index (LEI).

The LEI is a predictive tool comprised of 10 inputs that’s designed to “anticipate turning points in the business cycle by around seven months.” These inputs include financial components, such as the S&P 500 index of stock prices and the interest rate spread, as well as nonfinancial components, like ISM New Orders, average consumer expectations for business conditions, and average weekly hours (manufacturing).

According to Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board,

With August’s decline, the US Leading Economic Index has now fallen for nearly a year and a half straight, indicating the economy is heading into a challenging growth period and possible recession over the next year.

The Bottom Line

While an economic slowdown needs to happen to help taper inflation, it hasn’t always been a bad thing for the housing market. Typically, it has meant that the cost to finance a home has gone down, and that’s a good thing.

But remember, a slowing market does not mean a crashing one! Even though mortgage rates have increased, demand for homes is still very high. This has led to home prices reaching all-time highs in many areas of the country.

Mortgage rates will drop when the economy slows down, which we expect to happen later this year or in the beginning of 2024. When that happens, even more people will want to buy a home. This will keep home prices rising, which means the sooner you buy a home, the sooner you will benefit and see your home equity grow.

The housing market has slowed down a bit in the wake of affordability challenges. While there is still plenty of demand for housing and homes keep selling quickly (the median number of days on market has dropped nearly 50% since the beginning of the year), we are starting to see more price drops. According to Redfin, 18.8% of active listings had a price drop in August 2023, up from 16.6% in July.

When interest rates rise, throttling home affordability and shrinking the pool of potential buyers, many home sellers’ first move is to lower the listing price to get their home sold. This strategy may bring more buyers to the table, but not only does it reduce the seller’s net proceeds, more often than not the amount of the price reduction does not make a significant impact to the buyer’s new mortgage payment.

When you actually look at the numbers, asking for seller credits instead of a price reduction and using those funds to temporarily lower the interest rate for the first few years of your mortgage has a MUCH larger impact on improving home affordability and reducing your monthly mortgage payment. And, at the end of the day, it makes no difference to the seller!

Comparing a Seller-Paid Rate Buydown and a Price Reduction

When it comes to keeping your monthly payment and cash to close as low as possible AND maximizing the net proceeds for the seller, using seller credits to reduce your interest rate (and possibly eliminate private mortgage insurance) is drastically more effective.

Interest rate buydowns come in two forms: temporary and permanent. This article will focus on a temporary buydown (also called a 2/1 buydown), as that is the better option in an environment like today where interest rates are elevated but expected to come down. 

To illustrate the impact a seller-paid rate buydown could have on your mortgage payment, let’s compare a few different home purchase strategies that would be realistic today. The strategies in the chart below are for the purchase of a $550,000 home with 5% down using a 30-year fixed-rate loan.

Strategy #1: No Buydown or Price Reduction

The first strategy shows what the cost and savings would look like if there was no price reduction applied and no credits from the seller – just strictly purchasing the home at the list price with 5% down.

• Purchase Price: $550,000
• Interest Rate: 7.375%
• Monthly Payment: $4,124
• Buyer Monthly Savings: $0
• Cost to Seller: $0

Strategy #2: 3% Price Reduction

The second strategy shows what would happen if the seller agreed to a 3% reduction in the purchase price, which in this case would be $16,500. This would save the buyer $123 on their monthly mortgage payment, but the seller’s profit from the sale would be reduced by $16,500.

Purchase Price: $533,500
Interest Rate: 7.375%
Monthly Payment: $4,000
Buyer Monthly Savings: $123
Cost to Seller: $16,500

Scenario #3: Seller Credit for 2/1 Rate Buydown

For a conventional mortgage with a down payment less than 10%, the home seller can offer up to 3% of the purchase price as a credit to the buyer. This credit can either be used to reduce the buyer’s closing costs or, in this case, temporarily reduce the interest rate on their mortgage.

Rather than significantly dropping the purchase price, this scenario shows the seller offering to pay for a 2/1 rate buydown, which would reduce the interest rate on the buyer’s mortgage by 2% in the first year and 1% in the second year. This would reduce the buyer’s monthly mortgage payment by $682 – over 5 times the amount of savings than would be realized by a 3% price reduction!

Not only does it dramatically increase the savings for the buyer, a rate buydown also increases the profit for the seller compared to the price reduction. The cost of the 2/1 buydown in this purchase scenario would be $12,384, which is less than the 3% maximum allowed. That’s an extra $4,116 in the seller’s pocket. Talk about a win-win!

Purchase Price: $550,000
Interest Rate: 5.375%
Monthly Payment: $3,441
Buyer Monthly Savings: $682
Cost to Seller: $12,384

Strategy #4: Maximum Seller Concession (2/1 Rate Buydown and PMI Removal)

Not only would this reduce the buyer’s interest rate, it would also cover a complete elimination of private mortgage insurance (PMI) for the entirety of the loan. Monthly mortgage insurance is required on any conventional mortgage with a down payment of less than 20%, but the buyer can “buy it out” with their own funds OR seller credits.

The 2/1 rate buydown combined with the PMI removal would increase the monthly savings for the buyer to $809, a massive difference compared to the $123 savings with the price reduction.

And the cost to the seller? 3% or $16,5000 – the same as the price reduction.

Purchase Price: $550,000
Interest Rate: 5.375%
Monthly Payment: $3,315
Buyer Monthly Savings: $809
Cost to Seller: $16,500

The Bottom Line

As you can see, when it comes to price and concessions negotiations, a seller-paid rate buydown strategy is a much more effective at saving both parties money than a simple price reduction. The buyer enjoys a much lower monthly payment, and the seller gets to maximize their profit by keeping the home at the list price. The neighbors are happy too, because homes selling for top dollar is great for everyone in the neighborhood!

One of the other benefits of a seller-paid rate buydown is that if the opportunity to refinance comes before the buydown funds are used up, the remaining funds can be applied to the cost of the refinance. Quite often, those who choose to utilize a temporary rate buydown are able to refinance in under two years with no additional cost.

If you would like to learn more about the benefits of a seller-paid rate buydown strategy, or if you would like to see a loan comparison similar to the one above for your particular purchase scenario, contact us today!

DISCLAIMER

All figures and rates shown in the examples above are for educational purposes only and do not reflect an official mortgage loan offer. Hypothetical interest rate includes 1.0 discount point (1% of the loan amount) paid at closing. Hypothetical APR reflects the effective cost of the loan on a yearly basis, taking into account such items as interest, most closing costs, discount points and loan origination fees.

All figures shown in the examples above are subject to change and may be subject to pricing add-ons related to property type, occupancy type, loan amount, loan-to-value ratio, credit score, refinance with cash out and other variables. Estimated cash needed to close may fluctuate based on individual borrowers’ circumstances and are subject to a full Underwriting review of supporting documentation.

If you Google “recession” today, you’ll find thousands and economic news sources about what to expect in the economy.

Some believe that a recession is inevitable and bound to happen soon thanks to record-high inflation and the Federal Reserve raising interest rates to fight it. Others are of the mind that low unemployment numbers and high wages mean the economy will keep chugging along despite the higher prices and borrowing costs.

Recessions are a big deal for the housing market because they mean lower mortgage rates (more about that below). In an environment where mortgage rates are rising, our job as mortgage advisors is to understand what economic factors are at play that will bring rates down so we can help the buyers we work with get the most favorable terms on their home financing.

We believe the current economic climate means a recession is certainly on the way if it is not already here. We also believe an economic downturn will alleviate some of the pain that homebuyers have been feeling in this historically expensive, competitive housing market.

Recession Signals Getting Louder

There are two main reasons why we believe a recession is imminent:

1. Consumers are running out of money

U.S. consumer spending increased by the most in six months in July as Americans bought more goods and services, even though prices are up everywhere. The current pace of this increase in consumer spending is unsustainable. Households are drawing down excess savings accumulated during the COVID-19 pandemic. Student debt repayments resume in October for millions of Americans and higher borrowing costs could make it harder for consumers to keep using credit cards to fund purchases.

The below graphs show how the amount of revolving consumer debt (first graph) and the personal savings rate (second graph) in America have changed over the last five years.

Credit card debt and other consumer debt dropped significantly during the first year of COVID thanks to 1) government stimulus that was used to pay down debt; and 2) less discretionary spending because of lockdowns. But now that everything has returned to normal, consumer debt has skyrocketed to $1.5 billion higher than it was before the pandemic.

The personal savings rate has done the opposite. Americans were saving their stimulus and extra money in 2020 while they were stuck at home, but they have been tapping back into it significantly over the last two years.

The ability for people to use credit cards and spend their savings has an expiration date. Once those wells are tapped, Americans will stop spending, the economy will slow down, and we will be in a recession.

2. Inverted Yield Curve

The gray bars in the graph represent U.S. recessions. As you can see, every time the yield curve has inverted, a recession has immediately followed – and right now the yield curve is the most inverted it has ever been. We take this to mean a recession is at our doorstep.
Longer-term yields are lower than shorter-term yields right now for two reasons:

(1) the Federal Reserve has been pushing up short-term rates; and (2) investors who fear a recession are still putting most of their money in the safety of long-term government bonds rather than stocks. This is increasing the demand for bonds and pushing up their prices; and when bond prices go up, yields go down.

Plummeting savings levels, government stimulus drying up, and the inverted yield curve are the most glaring indicators of a coming recession, but there are many other factors at play. Jay Voorhees from JVM Lending shared some of these in a recent blog post:

• Major problems overseas that will spill over to the U.S.
• Quickly tightening bank lending/credit standards that also predict recessions with surprising accuracy.
• The impact of tight monetary policy and the lag effects from higher rates that have NOT been felt yet, as many companies, investors and consumers are only now being forced to refinance into higher rates.
• Rising credit card delinquencies.
• The impact of student loan payments resuming.
• A pending commercial real estate crisis – due to high interest rates and very high vacancy rates.

Why a Recession Will Be Good for Housing

The impacts of recessions can be felt across the entire economy, everywhere from employment to spending to stock market movement, and even real estate. But while the stock market and the housing market can fall during a recession, it isn’t guaranteed to happen.

In fact, falling home prices are less common than you may think. Home values have remained steady or risen during the last five recessions, aside from the Great Recession and the recession of 1990.

However, if something happens that causes rates to decrease (like a recession, which we believe will happen sometime next year), you may be able to refinance and get a permanently low rate for the rest of your loan.

Recession Doesn’t Equal A Housing Crisis

Home price change during the last 6 recessions.

During the recession in 1980, which is a similar recession to the one we are going through right now (high inflation, high interest rates, etc.), home prices continued to rise at a good rate even though mortgage rates skyrocketed to nearly 18%. 

The 1991 recession saw housing prices drop slightly for about a year, but then quickly bounce back.

In 2001, 9/11 created a big recession. Mortgage rates dropped, and the increased demand put upward pressure on home prices.

2008 was the only time we saw housing prices drop significantly, but that situation was very different. The decline in home prices actually caused this recession — not the other way around. Too much housing supply and not enough demand led to home prices tanking, and a recession followed.

Finally, in 2020, the Covid-19 pandemic brought on another recession. This one was so bad that the government started to print money. Housing prices started to creep up while everyone was sheltering in place, and they continued to rise nearly 16% over the whole year. In 2021, housing prices went up another 20%.

As for mortgage rates, they typically increase leading up to a recession, which is what we’re seeing today. But once a recession hits, interest rates fall to stimulate spending and get the economy back on track.

Here’s what has happened with mortgage rates during each recession going back to 1980:

Historically, every time the economy severely slows down, mortgage rates decrease without fail. 

The Bottom Line

While an economic slowdown needs to happen to help taper inflation, it hasn’t always been a bad thing for the housing market. Typically, it has meant that the cost to finance a home has gone down, and that’s a good thing. 

But remember, a slowing market does not mean a crashing one! Even though mortgage rates have increased, demand for homes is still very high. This has led to home prices reaching all-time highs in many areas of the country. 

Mortgage rates will drop when the economy slows down, which we expect to happen later this year or in the beginning of 2024. When that happens, even more people will want to buy a home. This will keep home prices rising, which means the sooner you buy a home, the sooner you will benefit and see your home equity grow.