Capital Economics Reports US Home Prices Will Fall By 2023 As Mortgage Rates Hit 6%

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Skyrocketing prices in the U.S. housing market will fall in coming months as cash-strapped potential buyers grapple with soaring mortgage rates, a major research firm said in a report Monday.

Home prices are expected to decline about 5% by the middle of 2023, according to the latest projections released by Capital Economics. Property values ​​were previously expected to remain unchanged over the same period.

The company revised its outlook for home prices in response to the recent rise in mortgage rates. The 30-year mortgage rate hit 6.03% on Monday, according to data from Mortgage News Daily. The same mortgage rate hovered below 3.5% as recently as January.

“This deterioration in affordability will exclude many potential buyers from the market,” Pointon wrote in the report, according to Bloomberg. “It will reduce competition for homes, and sellers will eventually see the need to accept a lower price for their property.”

Rates have risen so much that the average buyer buying a property at the median price will now spend more than a quarter of their annual income on mortgage payments alone, according to calculations by Capital Economics.

Demand for mortgage applications recently hit a 22-year low.
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While home prices are expected to fall following a pandemic-era surge, the company does not expect a full crash. Its current projections call for a rapid recovery in values ​​and a 3% annualized increase by 2024.

“The prevalence of fixed-rate mortgages, tight credit conditions and a relatively healthy labor market still rule out a price crash,” said Matthew Pointon, senior real estate economist at Capital Economics.

The median sale price for U.S. single-family homes was $428,700 through the first quarter of 2022, according to federal data.

As The Post reported last week, the average contractual interest rate on a 30-year fixed-rate mortgage, tracked by Freddie Mae, has seen its largest weekly increase since 1987. Rates are almost twice as high as ‘one year ago.

Rising rates led to a decline in the volume of mortgage applications, which hit a 22-year low earlier this month. More expensive mortgages undermine the purchasing power of future homeowners.

Rates have risen steadily as the Federal Reserve raises its benchmark interest rate to combat runaway inflation – most recently with an above-normal hike of three-quarters of a percentage point.

Although Fed rate hikes do not have a direct impact on mortgage rates, all forms of borrowing are becoming more expensive as the market adjusts to expectations of tighter monetary policy and the possibility of a recession for the American economy.

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