As families purchasing or selling homes withdraw from the market, home sale activity might hit its lowest point in the coming year since the early 1980s, according to Taylor Marr, deputy chief economist at Redfin.
Even if mortgage rates drop further next year, affordability in the housing market is likely to "remain a pretty strong constraint," according to Marr.
What Happened: The Redfin economist projected that only 32 out of 1,000 households will sell their home in 2023.
"Mortgage interest rates have risen rapidly this year — raising the monthly payment by about 50%," Marr said. "We do expect some moderation in rates to go into next year. But even after accounting for that and the elevated prices overall, affordability is likely to remain a pretty strong constraint."
As the Federal Reserve increased its benchmark borrowing rate for the seventh time this year and hinted that there would be more increases in 2023, the average long-term mortgage rate in the U.S. decreased for the fifth consecutive week.
Read also: Here's Where Morgan Stanley Bets The Housing Market Goes In 2023
According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.31%, down from 6.33% the previous week. The 30-year FRM averaged 3.12% a year ago.
Why It Matters: According to Redfin's current predictions, rates would be at their highest level since 2008 even if they drop to 6% or 5.8% by the end of the year.
Marr added that a lot of sellers had no immediate plans to return to the market.
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People who either thought about or were selling their homes "decided they're going to wait a couple of years until rates are much lower and economic environment is better," he said.
Redfin forecasts that there will only be 4.3 million sales of existing homes due to difficulties with affordability, inflation and mounting recessionary anxiety next year.
"Households have consistently grown each decade, but existing home sales are more volatile and have had more of a boom and bust," Marr said.
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