When mortgage rates spiked above 7% in October and further hindered demand, annual price rise in the increasingly unstable U.S. housing market fell into the singular digits for the first time in roughly two years, a pair of highly monitored surveys indicated on Tuesday.
The S&P CoreLogic Case Shiller national home price index saw its first single-digit climb since November 2020 in October, rising 9.2% as opposed to 10.7% in September.
The annual home price increase rate decreased to 9.8% in October from 11.1% in September, according to the Federal Housing Finance Agency, which regulates U.S. mortgage-finance companies, Fannie Mae and Freddie Mac. This is the index’s very first non-double-digit rise since September 2020.
S&P Case Shiller’s index decreased month over month for the fourth consecutive month, while the FHFA gauge remained steady.
Mortgage financing continues to be a drag on home values as the Federal Reserve raises interest rates, based on a statement from Craig Lazzara, a managing director at S&P DJI.
The Fed’s aggressive interest rate increases, which are intended to lower high inflation by reducing demand in the economy, have had a particularly negative impact on the housing market.
The Fed increased rates by half a percentage point this month, concluding a year that has seen its benchmark rate grow at the fastest rate since the early 1980s, from nearly zero in March to between 4.25% and 4.5% presently. In 2023, rates, as told by Fed experts, will likely reach 5%.
The housing market responds almost immediately to the rise in borrowing costs that the Fed has orchestrated, unlike other areas of the economy, many of which are yet to see a meaningful impact.
In October, the 30-year fixed mortgage rate crossed the 7% threshold for the first time since 2002, more than doubling in the previous nine months.
This pulled the rug out from under the previously booming housing market, which had been fuelled by record low cost of borrowing and a hurry to the suburbs all through the coronavirus pandemic.
The combined yearly sales rates of existing and new homes throughout November fell by 35% since January, one of the sharpest declines ever, to the lowest since late 2011.
This was revealed by data last week. Last month, both the number of new single-family housing supply and permits issued fell to a two-and-a-half-year low.
Freddie Mac, as well as the Mortgage Bankers Association, report that mortgage rates have decreased since early November to roughly 6.3% this month, but they are still nearly twice as high as they were at this time last year, which means they will continue to have a negative impact on the housing market.
The home price disaster that occurred during the financial crisis, when prices by S&P Case Shiller’s index decreased year over year for a solid five years from the months of March 2007 through April 2012, is not anticipated to happen again, according to economists.
Unlike back then, there are still incredibly few properties available on the market, which should maintain the price of homes at a minimum.
The National Association of Realtors predicted earlier this month that existing home values, which make up the vast majority of the market, will essentially stay steady in 2023.
According to LPL Banking Chief Economist Jeffrey Roach, the housing market will probably slow down even more in the upcoming year as the Fed tighten financial conditions.
The impact of higher rates should be mitigated by the low supply of properties for sale, protecting the housing market from a repeat of the Great Financial Crisis.
