The Mortgage Market: Affordable Yet Still Expensive
The Impact of Asset Managers on Housing Demand
Despite becoming more affordable, mortgages remain more expensive than they were in 2022. The anticipation of a housing market correction due to the Federal Reserve’s rate hikes did not materialize. This can be attributed to asset managers like BlackRock, who have been actively purchasing housing supply, thereby stabilizing prices and increasing housing demand. Consequently, average rental rates across America have soared.
Improvements in the Housing Market
While December 2023 marked the worst year for home sales since 1995, a report from Fannie Mae’s Economic and Strategic Research Group on January 18th indicates a positive shift. The report suggests that the housing market will gradually return to a more balanced state in 2024 after experiencing significant fluctuations in mortgage rates and deviations from pre-pandemic housing market measures.
Insights from a Mortgage Specialist
To gain further insights into the mortgage market, I spoke with Mike Rishel, a well-known Atlanta-based mortgage specialist.
Q&A with Mike Rishel:
Chad: How is the current state of the mortgage market? The drastic increase in rates from historic lows, such as the 15-year mortgage rate at 2.19 percent and the 30-year rate at 2.73 percent in February 2021, seems concerning.
Mike Rishel: We are actually quite optimistic because rates have decreased significantly in the past two months, which has stimulated business. In fact, I have received more applications from pre-qualified buyers in the past two months than in the previous six months.
Chad: Are mortgages becoming more affordable or more expensive?
Mike Rishel: The answer to this question depends on perspective. In the past couple of months, due to rate drops, mortgages have become more affordable compared to the previous six months. However, they are still more expensive than they were in all of 2022.
Chad: Has President Biden had a positive or negative impact on the mortgage market?
Mike Rishel: The increase in rates from 2% for well-qualified buyers at the beginning of 2022 to over 7% in 2023 does not leave much room for praise. However, it is likely that we will see a decrease in rates since they tend to drop during an election year.
Chad: How was the mortgage market during the Trump era?
Mike Rishel: It is difficult to find anything negative to say about those years in terms of the mortgage market. With rates consistently below 5% and often in the 2% range, it was a time that brought joy to homebuyers!
The Path Ahead for Consumers
Each year, the mortgage market presents a unique path for consumers. In 2024, consumers face a crucial decision. Will they take the risk and leverage their built-up equity in their current homes, or will they be the ones sharing stories with their new neighbors about overpaying for their new homes but securing a low rate?
Furthermore, an increase in housing inventory is expected, which typically leads to more sales. Zillow predicts that regions like the South, Midwest, and Great Lakes will thrive due to their relative affordability, while cities like New Orleans, San Antonio, Denver, Houston, and Minneapolis may experience lower demand.
It is worth noting that U.S. consumer sentiment improved in January, reaching its highest level in two and a half years. Additionally, the market anticipates multiple rate cuts by the Federal Reserve this year.
If the Federal Reserve hesitates to lower rates, certain markets may witness a decline in housing prices due to reduced demand. However, this could lead to increased activity and lower mortgage payments in specific areas.
Considering that the housing market has hit rock bottom, it is safe to say that the only way from here is up.
