Housing economists have released their forecasts for mortgage rates this year and next, and have listed the states that will see the biggest corrections in home prices.

  • Thelma Hepp says the Federal Reserve’s fight against inflation could be made more difficult by the housing market.
  • Most forecasters expect mortgage rates to peak at 6.8-6.9%.
  • Idaho, Utah, Nevada, Arizona, and Texas could see the biggest adjustments in home prices.

As of Thursday, average 30-year fixed mortgage rates are just below 7%. best since 2002The 15-year fixed rate was 6.36%. Both rates were almost double what they were a year ago.

As debt gets higher, investors and homeowners are hesitant to buy new properties. The Pending Home Sales Index (PHS), which measures residential contract activity in signed contracts for existing single-family homes, condominiums and co-ops, fell for the fourth straight month. September PHS measured at -10.2%.

Thelma Hepp, interim chief economist at real-estate data firm CoreLogic, isn’t surprised. The market is recovering from the very strong demand seen in 2020 and 2021, she said.

“So the housing market is currently in a period where mortgage rates are high and housing affordability is at historically low levels, leaving many potential homebuyers unable to afford a home. It has been reset to index.”

Hepp has been working as a housing economist for about 15 years. Now she focuses on the Federal Reserve and its tenacity in fighting inflation. Her hawkish approach has led to a significant increase in expected mortgage rates during this time, she noted.

But the central bank’s target of returning inflation to 2% could be further challenged by the housing market, she added. Housing accounts for about 30% of the inflation indicator. But the housing metric — shelter price increases — has lagged because of the way it is measured, she said. It will take nine to 12 months to capture the inflation component of the shelter, she added.

The bad news is that Hepp predicts housing inflation will continue to rise and not peak until next summer. The good news is that mortgage rates aren’t likely to go above 7% for him.

“When we looked at the forecasts of five outside companies or organizations that focus on forecasting mortgage rates, the majority of them saw mortgages peak at 6.8, 6.9% in the fourth quarter of this year,” Hepp said. “Then it will gradually decline from there, to about 6.3% by the end of next year.”

However, economic instability has spread the forecast considerably. This means she could even go back up to 5.5% by the end of next year, she added.

Despite how tough the economic environment may appear on the surface, the housing market is in a much stronger position than during the 2008 financial crisis, she noted. There are her three main factors that make this slowdown so different.

beginning, Underwriting standards have become increasingly stringent since 2008. This meant homeowners had to meet higher standards to qualify for a mortgage, and this time they are in a stronger position, she said. rice field.

number two, homeowners have more stake in their properties due to rising home prices over the past two years. She added that if, for example, she was forced to sell because she lost her job, she wouldn’t have to go into foreclosure and could even walk away with a profit.

CoreLogic data shows that U.S. homeowners with mortgages have a total wealth of $3.6 trillion after Q2 2021 Or an increase of about 27.8% year-on-year.

Hep said of the 2008 financial crisis, “This is a very big difference from the last time people came in without holding stocks. They didn’t pay a down payment and in some markets house prices fell by 60%. I did,’ he said.

Third, inventories are at historically low levels. This creates a lower floor for house prices as supply is still in short supply. Interest rates on about 95% of mortgages are less than his 5%. This will discourage many homeowners from selling their homes and acquiring new properties at higher interest rates.

But it’s important to note that there are different housing conditions depending on the market we’re looking at, she added. We advise you to be cautious about your area.

The markets that have fallen the most from peak home prices this year are those that benefited from increased demand during the pandemic as people fled expensive West Coast markets to the Mountain West. These regions include states like Idaho, Utah, Nevada, Arizona and Texas to some extent, she said.

“We are already seeing setbacks in that transition,” said Hepp. “People are either returning to some of these West Coast regions or moving to other more affordable markets in the Southeast and South. There is none.”

Additionally, single-family home prices rose at a faster pace than condominiums during the pandemic. she added.

“Condominium prices are volatile,” Hepp said. “They tend to be more responsive to cycles than single-family homes.

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