The Federal Reserve was under pressure to start its roughly one-year-long journey to control inflation by raising interest rates as a result of stubbornly high costs during 2022.
The housing market has been under tremendous pressure as a result of those month-over-month rises in interest rates because mortgage rates rise in tandem with each Fed rate increase.
The Fed increased borrowing costs, which discouraged prospective homebuyers; in November, sales of new single-family homes fell to a seasonally adjusted annual rate of 640,000, down from 756,000 the year before.
It wasn’t just interest rates.
According to a quarterly study released by the National Association of Realtors (NAR), the median price of a single-family existing house during the second quarter of 2022 was $413,500, marking the first time costs have risen above $400,000.
According to the NAR, the median price of an existing home increased 3.5% year over year to $370,700 in November.
Redfin Corp noted mortgage applications are at their lowest level in more than 25 years, reflecting the impact that rising housing costs have had on home buyers.
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The overall number of existing home sales decreased from October to November by 7.7%, making it the eighth month in a row that sales have decreased. They are also down 35% from a year earlier.
As a result, several industry professionals believe that the housing market has already hit its bottom.
“It seems we have already reached the bottom of the low home sales activity,” says Nadia Evangelou, senior economist and director of forecasting for the NAR. “And with mortgage rates stabilizing near 6%, we expect the housing market to turn around in 2023, [A]nd rebound in 2024.”
Lawrence Yun, chief economist for the NAR said, “We’re witnessing a housing recession in terms of declining home sales and home building.” Yun continued, “Inventory remains tight and prices continue to rise nationally with nearly 40% of homes still commanding the full list price.”
Jeremy Siegel, Wharton professor of finance expects home prices to slide up to 15% in 2023. “I expect housing prices fall 10% to 15%, and the housing prices are accelerating on the downside," Siegel told CNBC, noting that housing prices by any indicator are going down.
Mark Zandi, chief economist at Moody's Analytics assumes a 10% decline in the current market. "Buckle in. Assuming rates remain near their current 6.5% and the economy skirts recession, then national house prices will fall almost 10% peak-to-trough," he said in an October tweet. "Most of those declines will happen sooner rather than later. And house prices will fall 20% if there is a typical recession."
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