How does the FOMC’s decision to raise rates impact the housing market? It’s one of the topics covered in this week’s Hot Sheet recap.
Dive in below for what’s happening with mortgage rates, the current seller’s market, CoreLogic’s Home Price Insights, and Steve Harney’s take on home prices.
What the Fed’s Rate Hike Means for the Housing Market
The big news of the week included results from this week’s FOMC meeting. As expected, the Fed raised rates by a quarter percentage point. This brings us back to the highest federal interest rate in 16 years.
In his press conference, Fed Chair Jerome Powell briefly addressed the housing market by stating, “Activity in the housing sector remains weak, largely reflecting higher mortgage rates. Higher interest rates and slower output growth also appear to be weighing on business fixed investment.”
As far as how this impacts mortgage rates, we have historically seen a decrease in the 30-year fixed mortgage rate following a federal interest rate increase. Mortgage Bankers Association SVP and Chief Economist Mike Fratantoni stated:
Neither a fragile banking sector nor a slowing job market prevented the Federal Reserve from increasing its short-term rate target again today, in line with market expectations. However, with this increase, we expect this is the peak rate for this cycle, and potential homebuyers and their mortgage lenders may be breathing a sigh of relief. We continue to expect that mortgage rates will drift down over the course of the year as the economy slows, as we move closer to the Fed lowering rates beginning in 2024, and as financial market volatility finally begins to settle down.
This is why the federal interest rate doesn’t always align with mortgage rates.
Watch the breakdown of Powell’s press conference and how the Fed’s decision impacts mortgage rates.
Strong Seller’s Market
With low inventory, there is competition among buyers who are still on the search—especially for median-priced homes.
A chart from Altos Research shows just how strong the seller’s market is. The 7-day median price for a single-family home is inching up toward $450,000, while housing inventory is on a downward trend, hovering above 400,000.
Source: Altos Research
If you have sellers on the fence, this is a good chart to showcase how low inventory is—and where home prices are trending.
Watch the full breakdown of the seller’s market here.
CoreLogic Home Price Insights
Last week on the Hot Sheet, host Byron Lazine reviewed home price reports from FHFA and Case-Shiller. This week, CoreLogic released its Home Price Insights for March 2023. It showed a 3.1% increase in home sales year over year. Month over month, home prices increased by 1.6% in March 2023 compared to February 2023.
In addition, CoreLogic predicts continued growth in home prices over the next year—with a forecasted 4.6% in home sales from March 2023 to March 2024.
Source: CoreLogic
Watch the breakdown of the CoreLogic home price index here.
KCM Founder Steve Harney on Home Prices
Major home price indexes are all showing home price growth. Steve Harney, founder of Keeping Current Matters, shared this Tweet discussing home prices:
“U.S. home prices could plunge 20% Dallas Fed warns”
— Steve Harney (@SteveHarney) May 4, 2023
“There are now 210 U.S. housing markets at risk of 15% to 20% home price declines, says Moodys”
“U.S. home prices could fall as much as 20% next year”
These were actual headlines reported by mainstream media last fall. These… pic.twitter.com/GOP8ax3kOZ
While Harney states the home price correction is over, keep in mind that we may see some month-over-month dips in quarter four—especially if we head into a recession.
Watch the full breakdown of Steve Harney’s take on home prices here.
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