MortgagePoint July 2023

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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 54 J O U R N A L July 2023 Lending/Originations MORTGAGE RATE LOCKS TO REMAIN A CHALLENGE A ccording to a forecast update by, mortgage rate lock-ins will be a major challenge in the housing market for the remainder of 2023. While prices posted a marginal improve- ment, higher rates are hurting affordability, and many of those who already own a home are being impacted by the lock-in effect and are disincentivized to list their homes for fear of taking out a new mortgage at a higher rate. As a result, total home sales are projected to be down 15.8% to 4.2 million units, the lowest point since 2012 because of small- er-than-expected mortgage rate lock-ins. They are also predicting that inventory levels will slip 5% for the year, and not the growth projected in the initial forecast. Home price growth is also now expected to decline (instead of increasing) by around 0.6% by year-end. On the rental side of the market, prices are expected to drop by less than 1% as unusually strong multifamily construction is providing more for-rent units. In addition, the challenging housing market will keep many people renting. Despite the forecasted pullback, rent is still $350 more on average than it was compared to pre-pandemic levels. "High inflation and the Fed's actions to curb it have had a significant impact on the housing market this year. And while inflation has begun to ease, the sustained spike in mortgage rates was enough to stifle the hous- ing market after several years of low rates and strong activity," Chief Economist Danielle Hale said. "The housing market has really seen a double whammy in 2023, with a retrenchment in the number of homes for sale coupled with still-high prices and mort- gage rates that have kept both first-time and repeat buyers on the sidelines." Also, affordability is improving but still has a long way to go. Persistent underbuild- ing relative to population growth over the last decade has accelerated the problem which is compounded by low affordability. As a result, now expects a modest decline in home prices of 0.6% for the year. The expectation is that mortgage rates will also be slightly lower than originally anticipated, but not low enough to bring down buying costs until the end of the year. "As inflation is expected to cool gradually, we expect that mortgage rates will start to do the same be- ginning mid-year and nearing 6% by the end of the year," Hale said. For the year as a whole, the cost of a mortgage is expected to be up 10.5% com- pared to 2022. "The vast majority of homeowners locked in low rates during the pandemic and aren't particularly excited to give them up in order to buy a new home, unless they really need to move for personal reasons," Hale said. Despite the Fed's tightening, the economy and labor markets have shown resilience. And while paychecks haven't kept pace with inflation, Americans have dipped into pandemic savings and continued to spend money. While this is boosting the current economy, it could have an impact in the fu- ture if consumers burn through savings and need to rely on high-interest debt. TYPICAL U.S. MONTHLY HOUSING PAYMENT NEARS RECORD HIGHS W hile spring is traditionally a hot homebuying season, it didn't come to fruition in 2023, according to a new report from Redfin. This year, instead of the calendar determining the homebuying season, the Federal Reserve is dictating when people buy and sell. And so far, the Fed's actions are suggesting they wait. New data found pending home sales fell 16% from a year earlier during the four weeks ending June 18. But even though sales are relatively cool, Redfin's Homebuyer Demand Index—a measure of requests for tours and other early-stage buying services from Redfin agents—is up 11% year over year. Additionally, there are more house hunt- ers than there are homes hitting the market. New listings of homes for sale are down 24% from a year ago, and the total number of homes for sale is down 8%, representing the biggest drop in over a year. Elevated mortgage rates are responsible for the drops on both the demand and supply sides. With average rates sitting above 6% all spring, pushing the typical U.S. monthly housing payment up near record highs, many would-be buyers are sitting on the sidelines, waiting for rates to come down. And the buy-

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