The post-pandemic fueled housing buying frenzy took a market that saw inventories below normal levels just before the onslaught when the buying began and sent supplies even lower. So where were prices going to land with limited homes on the market for sale with huge buying demand? Supply and demand tell us that low supply and high demand = higher prices.

And rise they did. This past summer, we saw annual home price gains rise above the 20% mark. A CoreLogic spokesperson said in June, “The annual growth in the U.S. index was the largest we have measured in the 45-year history of the CoreLogic Home Price Index.” Those kinds of gains are not normal. Looking back, from March 1992 to September 2022, there was an average growth rate of 5.3%.

Higher borrowing costs have been ushered in due in part to the recent 40-year high in consumer costs or inflation. The 30-year fixed rate is now double what it was a year ago, but it has declined a bit in the past month. There are varying numbers of where rates will land in 2023. Fannie Mae sees rates averaging between 6.2% and 6.6% with Cousin Freddie Mac at 6.4% while Realtor.com sees the rate at 7.4%. So, rates are expected to remain high.

However, hot home price gains are already cooling off with the latest reading from CoreLogic showing annual gains of 10% In October, still a bit high, but heading lower. The forecast is a 4.1% gain from October 2022 to October 2023 as inventories will still be below 2019 levels but up from 2022 which will be welcome.

Here at the Mortgage Market Guide, we are not in the business of forecasting home price gains, but 20% is not sustainable and single digits make sense. Especially when you look historically.

Bottom line: Rates have improved, and sellers are eager to make deals. This may pose great opportunities for a nimble buyer, and this is not an environment to wait. Owning a home is still part of the American Dream.

Source: Mortgage Market Guide