The moments that made the market in 2023
Before we close the books on 2023 and start looking ahead to 2024, it’s helpful to look back at what happened this year in the housing market. This helps us understand the forces that have shaped the market, and how likely they are to continue into 2024.
From a broad standpoint, the main events that are shaping the market this year are the same as the ones from 2022—"mortgage rates went up and home prices didn’t go down. This has been a difficult year for housing affordability.”
But there was much more news in the housing market this year than rates and prices, and focusing on just those two ignores much of the truly exciting news that you may have missed this year. And some of those exciting news items are coming from Guaranteed Rate Affinity.
So, let’s take one last look back at the moments in the housing market this year, and how Guaranteed Rate Affinity loan officers were able to help you navigate through them.
Mortgage rates rose
Mortgage rates started the year hovering near 6.5%, then starting to dip into the low 6%’s in February. This gave some hope that they’d get back into the 5% range, where they hadn’t been since September of 2022. But rates promptly started going back up, topping out near 8% at the end of October. That remains the highest they got this year, at the time of this writing.
What drove mortgage rates up?
One of the biggest drivers of mortgage rates is how the Federal Reserve sets their federal funds rate in their mission to tame inflation. Throughout 2023, the Fed raised rates by a quarter of a percentage point, also called 25 basis points at their meetings on:
- February 1st, to a range of 4.5% to 4.75%
- March 22nd, to a range of 4.75% to 5.00%
- May 3rd, to a range of 5.00% to 5.25%
- July 26th, to a range of 5.25% to 5.50%
This followed rate hikes of .5% or .75% in their last 6 meetings of 2022. This constant rate hiking put upward pressure on borrowing costs, like mortgage rates. However, throughout this time, the economy still showed signs of strength, with more people working and healthy economic activity. This is why the Fed governors, who decide whether or not to change the Fed rate, kept raising their rate.
Starting in September, the Fed felt that their rate was high enough to put a pause on further rate hikes in September and November. (As of this writing, the December Fed meeting hasn’t occurred.) They have not given indication that they would cut their rate this year.
Home prices went up, putting a strain on buyers
While mortgage rates were rising, so too were home prices. This seemed to fly in the face of normal economic thinking. Higher mortgage rates were reducing the demand for homes, so shouldn’t have home prices come down to line up with that demand? Unfortunately, the supply of homes for sale was never enough to meet even the lower demand, keeping home prices high.
How high? In the third quarter of 2023, The national median single-family existing-home price grew 2.2% from a year prior to $406,900, according to the National Association of Realtors® (NAR). This is how home prices fluctuated, and mostly went up, on a month-by-month basis:
$359,000 | Down 2.2% | Up 1.3% | |
$363,000 | Up 1.1% | Down 0.2% | |
$375,700 | Up 3.5% | Down 0.9% | |
$388,800 | Up 3.5% | Down 1.7% | |
$396,100 | Up 1.9% | Down 3.1% | |
$410,200 | Up 3.6% | Down 0.9% | |
$406,700 | Down 0.9% | Up 1.9% | |
$407,100 | Up 0.1% | Up 3.9% | |
$394,300 | Down 3.1% | Up 2.8% |
Those three months in the summer represent the first time the median existing-home price was above $400,000 for three straight months.
The affordability problem
Rising home prices and mortgage rates make it especially hard for first-time homebuyers to afford the monthly payments associated with owning a home. This is what we call the affordability problem.
According to NAR’s Third Quarter home price report, the monthly mortgage payment on a typical existing single-family home with a 20% down payment was $2,192, up 19.2%—or $354—from one year ago. Families typically spent 26.8% of their income on mortgage payments, up from 23.5% one year ago.
It gets worse when looking at a typical starter home, which according to NAR has an average value of $345,900. With a 10% down payment loan, the monthly mortgage payment rose to $2,149 during the third quarter—that was an increase of $343, or 19%, from one year ago ($1,806).
Find out how first-time homebuyers can make the best first step to buying a home in 2024.
Offering more affordability loan products
In order to combat this affordability problem, more and more loan products are being offered that could help make your dreams of homeownership more attainable. Lenders are responding to the obstacles that many first-time homebuyers, and those who are looking to level up their homes right now, are facing with creative solutions.
Paying Points
One of the most popular ways to save on your monthly mortgage payments is by paying a little more at the beginning of the loan to lower your mortgage rate. This is known as buying down the rate or paying points. You pay your lender extra money up front — on top of your closing costs and down payment — and in return, they will reduce your interest rate.
For every point you purchase, your lender will lower your mortgage rate by a certain percentage. Usually, the cost of a point is 1% of your total loan amount, which may reduce your rate one-quarter of a percentage point. The exact number will vary by lender.
As an example, if your loan amount is $400,000 and your interest rate is 7.5%, you may be able to pay $4,000 to lower your rate to 7.25%. Over the course of the loan, that could end up being thousands of dollars saved.
Temporary buydowns
Guaranteed Rate Affinity offers a program that allows the seller to help you lower your rate for the first year to three years of your loan called Rate Reduce. There are five different buydown options that we offer, giving you and your seller flexibility to help close the deal in a way that works for both of you.
Temporary buydowns like Rate Reduce allow the seller to help pay down the rate of the first year, or two or three years, of your loan. This is called the initial period, and after it’s up, the rate goes back up to the rate quoted to you when you close. Guaranteed Rate Affinity offers five types of temporary buydowns through Rate Reduce. The most common is called a 2-1 buydown, but there’s also a 3-2-1 buydown, 1-1-1 buydown, 1-0 buydown and 1.5-0.5 buydown.
Special loan affordability programs
There are many programs designed to help first-time homebuyers realize their dreams of homeownership. These include down payment assistance programs, helping first timers with what can be one of the most significant obstacle to homeownership, the initial down payment.
An example is FirstHome Plus, a Guaranteed Rate Affinity loan program that eliminates some loan terms and upfront fees for first-time homebuyers based on their income level. Eligible households that are at or below 100% Area Media Income (AMI) in many areas of the United States, and up to 120% AMI in high-cost areas can qualify. For instance, the AMI for the Chicago area is $105,700. So, a household could make up to $126,840 (120% of AMI) and still qualify for this program.
Be sure to talk with a loan officer about some of the programs that can help you afford a home that were offered this year.
More homes are being built… and we need it
The lack of homes for sale, otherwise called housing inventory, is a major reason that home prices have risen so much over the last few years. And while many of the issues that we’re dealing with in the housing market today can trace their origins to what happened during the pandemic, the inventory issue has been with us for years.
The fact of the matter is, there are only so many homes in the country. It is assumed that if mortgage rates come down, more people may be more interested in making a move and will put their homes on the market. That will help a little, but it won’t be enough to truly ease the problem. And it will also mean there are more buyers looking for homes.
Lawrence Yun, chief economist at NAR, believes that “the market could easily handle a doubling of current inventory.” Yun notes that there were 1.8 million homes for sale in the fall of 2019, and that there are only 1.1 million homes for sale in the fall of 2023. That’s despite population growth of 8 million people. "An inventory of 2.2 million would help better satisfy demand," Yun said.
The best way to solve this problem is with construction of new homes, and fortunately, home builders are prepared to answer the call. Construction spending was up in September, at a seasonally adjusted annual rate of $1,996.5 billion. This was 0.4% above August and 8.7% percent above September 2022. During the first nine months of 2023, construction spending amounted to $1,463.5 billion, 4.6% above the same period in 2022.
Buying a home that hasn’t been built yet
While positive, these numbers are still a long way from doubling housing inventory as Yun is calling for. Buying new construction may be the best way in the years ahead to find the home you’re looking for. However, buying a home that is still being built is a little bit different than a pre-existing home. Find out how to buy new construction.
Making the most of 2023… and 2024
As you’ve just read, 2023 has presented some challenges in the housing market. But throughout the year, our loan officers have been able to offer solutions to homebuyers, real estate agents and current homeowners to help them make the most of the market. Whether it was through new loan products or exciting new technology, we’ve been with you every step of the way, and will continues to innovate solutions in 2024.
Talk to a loan officer today about what you can do to get ready for 2024.
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