Will homebuying pick up in the spring?
The return of typical seasonal buying patterns could signal a stabilizing market.
Key points:
- With the dramatic rise in interest rates the past year, buyers and sellers are waiting for that balancing point.
- Economists believe this could happen during the spring season, when activity traditionally picks up.
- There are several reasons for optimism in the longer term, but 2023 will still be challenging.
As the real estate industry attempts to navigate this period of higher interest rates, next spring could offer a preview of the state of the market.
What's in store for the housing market was one of several topics discussed at the Oct. 27 ATTOM webinar, Will Rising Mortgage Rates Sink All Ships?
Currently, the market is trying to find a balance for buyers and sellers after the dramatic rise of mortgage interest rates. In the past year, the average 30-year mortgage rate has risen from 3.14% to 7.08% as of Oct. 27, according to data from Freddie Mac. That's led to an adjustment period, with buyers recalculating what they can afford and sellers trying to determine what sale price they're willing to accept.
This rebalancing act has paused the market, with home sales down dramatically and prices falling at different rates across the country. While the market appears stalled for now, there's reason for longer-term optimism, said Len Kiefer, deputy chief economist at Freddie Mac. Kiefer was joined by Rick Sharga and Sean Mooney of the real estate data company ATTOM for the panel discussion.
Kiefer's optimism is based on demographics and the key factors that differentiate this slowdown from the housing bubble burst of the late 2000s, which was followed by a lengthy recovery process. While that kind of extended slowdown is a possibility, Kiefer said several factors make it less likely:
Locked in rates: Kiefer noted that two out of five mortgages were using adjustable rates in 2005, while less than two out of 100 were adjustable in 2021. Having so many lower fixed mortgages in place will insulate existing homeowners from interest rate shocks to their monthly payments.
High home values: Because of the steep appreciation in home values the past few years, it will take a severe drop in prices before many homeowners find their mortgages underwater.
Generational factors: Demographic shifts suggest there will be strong demand as more Americans reach the age they typically buy homes.
Debt levels: Overall mortgage debt remains in relatively good shape.
Strength of the economy: Sharga also noted the economic differences as the federal government tries to tame inflation, including strong job growth, wage increases and solid consumer spending.
While the data suggests today's real estate market will recover more quickly than it did after the Great Recession, 2023 will still be challenging, Kiefer said. Consumer confidence during the typical spring buying season could set the tone for the rest of the year.
Spring is generally when homebuying activity picks up, peaking in the summer. If interest rates have leveled out by then, consumers could be more confident that a balance has been found. If rates are still rising, it could make for a long, chilly summer.