As mortgage interest rates spike, economists tamping down their home sales forecasts for this year.
Average Rate on 30-Year Fixed Hit 4.72% on last Tuesday
The average rate on the popular conforming 30-year fixed mortgage jumped 26-basis points higher to 4.72% since the end of the week before, according to Mortgage News Daily.
This mortgage rate spike has spurred economists to lower their home sales forecasts for 2022. Most estimates at the end of 2021 had the average rate of home sales growth hitting 4.5% by year’s end. However, those estimates are well past tense now due to the combination of 7.9% inflation, oil prices jumping resulting from the invasion of Ukraine by Russia and interest rate hikes.
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Unpredicted Jumps and Falls in Rates and Sales, Respectively
Matthew Graham, CEO at Mortgage Daily News, said, “Rates have a small chance to top out before hitting 5% and a good chance of topping out before hitting 6%. It’s a rapidly moving target in this environment, where we legitimately and unexpectedly find ourselves needing to be concerned with inflation for the first time since the 1980’s.”
Lawrence Yun, chief economist with the National Association of REALTORS® (NAR), had previously predicted interest rates to linger at around 4.0% this year. Now, Yun says that he expects rates to dawdle at approximately 4.5%.
NAR officially predicts home sales to fall -3% in 2022 but Yun is not as optimistic. He believes home sales will fall approximately -6% to -8% this year.
The chief economist over at CoreLogic, Dr. Frank Nothaft, talked about the housing market being imbalanced in terms of high demand and scant inventory. Such imbalance pressured home prices to remain escalated at +19% y/y in January. Nothaft said, “That combination (+19% home prices and climbing interest rates) is a double whammy that erodes affordability for homebuyers, especially first-timers. First-time buyers are a sizable part of prospective shoppers and their share of purchases has slipped from one year ago.”
Nothaft made it clear that CoreLogic “…will be revising our home sales forecast a bit lower.”
All Housing Market Players Adjusting Their Expectations
Despite the housing market remaining highly competitive, home sellers appear to be adjusting their asking prices downward. Danielle Hale, chief economist with Realtor.com, said, “in a potential sign that sellers are mindful of buyers’ tightening budges as mortgage rates climb, last week’s data showed the first slowdown in asking price growth since January.”
Hale hasn’t yet revamped her home sales forecasts to reflect the fact that rising rates translate into less purchasing power for potential buyers. Why? Two reasons…
One – fast-rising rents may motivate some would-be buyers to actually buy before inflation takes away even more of their purchase power.
Two – “Demographics are also favorable for the housing market this year, with more than 45M households in the 26-35 age range, which are key years for household formation and first-time home buying.”
Still, in thinking more about rising interest rates amid January’s +19% home price hikes, Hale said, “…the economic considerations for those households are going to be challenging.”
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