First American: Falling Mortgage Rates Have Boosted Homebuying Power
Home sales will reach a seasonally adjusted annualized rate of 4 million in 2023, thanks to falling mortgage rates in the fourth quarter, First American’s Mark Fleming forecasts in the firm’s most recent Potential Home Sales Model.
“Existing-home sales of 4 million SAAR is still low from a historical perspective, but it represents a move in the right direction,” Fleming says in the report. “Heading into 2024, existing-home sales may continue to drift higher if mortgage rates fall further or stabilize.”
Fleming points out that purchase applications increased 5% in November compared with October, according to data from the Mortgage Bankers Association, and “data from the first two weeks of December indicates a nearly 8 percent increase from November.”
“A simple analysis based on the historical relationship between mortgage applications and existing-home sales indicates that home sales should accelerate,” Fleming says.
“The road back to a market that is not too hot, not too cold, but just right will be a slow one, but recent mortgage applications data indicates a thaw in the housing market is upon us,” he adds.
However, “it’s unlikely that existing-home sales will increase dramatically,” in 2024, “as the bulk of existing homeowners will remain rate locked-in,” Fleming says.
Even if mortgage rates fall to 6%, it still won’t be enough to cause a deluge of buyers.
But as Fleming notes, mortgage rates aren’t the only factor in predicting future home sales:
“Mortgage rates combined with a 0.3 percent increase in median household income fueled a 2 percent ($6,500) month-over-month increase in house-buying power” in November, he says.
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