The Thrill Ride of Housing Sales and Lending Forecasts - May 2023

Residential mortgage interest rates are the rudder for home sales and residential lending. Historical conventional 30-year fixed-rate mortgage rates are shown in the following graph as reported by Freddie Mac in their weekly Primary Mortgage Market Survey (PMMS). The latest rate as of the week ending May 25, 2023 was 6.57 percent, down from 7.08 percent the last week of October 2022 which was the highest seen in past 20 years. Daily rates from other sources quote in the low 7 percent range, however.

Interest Rate Expectations

The latest mortgage rate forecasts from Fannie Mae and the MBA are detailed in the table. Fannie Mae sees rates rising 100 basis-points from a 5.3 percent average in 2022 to 6.3 percent in 2023. MBA on-the-other hand expects rates to rise from 5.4 percent in 2022 to 6.1 percent in 2023 for a 70 basis-point gain. The MBA expects rates to drop 90 basis-points in 2024 from 6.1 percent in 2023 to 5.2 percent while Fannie Mae sees rates averaging 5.6 percent next year.

Existing Home Sales & Median Prices

Fannie Mae and MBA both see existing home sales sliding in 2023 due to eroding affordability based on higher rates. Sales of existing homes were down 27.4 percent year-over-year in the month of May 2023 according to the National Association of Realtors® (NAR) and off 26.4 percent year-to-date in the first four months of 2023 versus the prior year period. The MBA remains more optimistic given their lower interest rate expectation in 2024, but still not returning to the five million level home sales level until 2025.

Both see declining median home prices in 2023, down from 1.2 percent to 4.2 percent.

Historical existing home sales from 1990 through 2022 are detailed in the next graph. The current estimates for 2023 would be the fewest home sales in the past13 years.

New Home Sales

Since 2002, there has been an average one new home sale for every 8.9 existing home closings. The current forecasts call for new home sales to be flat in 2023. Median prices are expected to change little in 2023 and 2024.

Monthly Principal & Interest Payments 2020 Vs 2023

The MBA expects typical monthly mortgage payments to be up 3.4 percent in 2023 while Fannie Mae calls for double that amount at 7.5 percent. If the MBA is correct in their current 2024 forecast, the typical P&I payment will be 68.9 percent greater compared to 2020. If Fannie Mae is on target, the monthly P&I payment in 2024 will be up 66.8 percent Vs 2020. No question regarding the cause of eroding affordability given the impact of rising rates and home prices.

Residential Lending

Rising interest rates crushed refinance activity in 2022 compared to 2021 (down 73 percent) with another almost 50 percent freefall (average) expected in 2023. More than 6-in-10 residential mortgage lending officers in business in 2021 are now out of a job in the mortgage industry with more cuts announced monthly. When the smoke from this implosion clears, for every 10 residential loan officers in business 2021 there will be four or less by the end of 2023.

The housing sales and residential lending thrill ride continues, fueled by Interest rates, jobs, consumer confidence and recession expectations. Biggest unknown right now, however, is what elected leadership is going to do on the debt ceiling and potential default on U.S. debt. Throw in another banking crisis and all guidance on where mortgage and housing markets are heading becomes meaningless.

Keep that seat belt tight as this wild ride continues.