What will the new year bring for homebuyers, homeowners and home sellers? Lower or higher home prices? Higher or lower mortgage interest rates? Or a continuation of the overheated pandemic-inspired housing market?

There’s no question that the blistering housing market of the past three years was hard on homebuyers. By October 2022, the average mortgage interest rate for a 30-year fixed is 7.24%, more than double the 3.22% level in January 2022.

According to Fannie Mae, the combination of high inflation, monetary policy tightening, and a slowing housing market is “likely to tip the economy into a modest recession in the first quarter of 2023.” However, the housing market is typically slow during the first quarter in Michigan due to cold weather.

Many economic forecasters believe housing prices will decline, but that homebuyers shouldn’t fear buying during a declining market. Morgan Stanley predicts a 7% dip in home prices for 2023 that would only return housing prices to where they were in January 2022 – 32% higher than prices were in March 2020 when the pandemic began. Economists with Goldman Sachs and Moody Analytics are predicting 5% to 10% declines in home prices, based on lack of homebuyer affordability, slowing housing sales, fewer mortgage applications and a looming recession, however mild.

BusinessInsider.com reports that the Federal Reserve’s overnight rate hikes have raised mortgage interest rates, pushing affordability to new lows, but that a recession could bring interest rates down again. That combined with softer homebuying demand due to inflation and sellers lowering their prices would make spring and summer 2023 great times to buy a home.

Lansing-East Lansing was the nation’s most affordable housing market, defined as a metro with a population of at least 500,000. Here, 84.4 percent of all new and existing homes sold in the third quarter were affordable to families earning the area’s median income of $89,500.

Top five affordable major housing markets:
1. Lansing-East Lansing, Mich.
2. Indianapolis-Carmel-Anderson, Ind.
3. Scranton-Wilkes-Barre, Pa.
4. Toledo, Ohio
5. Syracuse, N.Y.

The National Association of Home Builders has reported this week U.S. housing affordability fell to its lowest level since NAHB began tracking it on a consistent basis in 2012. They say rising mortgage rates, ongoing building material supply chain disruptions, high inflation and elevated home prices and pushed the housing market into a recession.

According to the NAHB/Wells Fargo Housing Opportunity Index, just 42.2% of new and existing homes sold between the beginning of July and end of September were affordable to families earning the U.S. median income of $90,000. This marks the second consecutive quarterly record low for housing affordability since the Great Recession.

The Lansing area housing shortage continues with higher mortgage rates having reduced the number of qualified buyers who are able to invest in a home purchase. Unlike last year’s market, when the monthly mortgage payment considerably cheaper, homes are taking longer to generate an offer. Entering the winter market, sellers listing their home above market value may have few showings.

If you’re looking to buy a home, the days of low interest mortgages below 4% have passed. Recent inflation has translated into higher interest rates with increased monthly payments. Mortgage rates have increased consistently since the start of 2022 when they were at 3.5%.
As of October 31st, the rate for a 30-year conventional mortgage has climbed to 7.08%.

Inflation, home prices and higher mortgage rates are impacting affordability. Causing many homebuyers to stop looking. Buyers who made unsuccessful offers during the Spring 2022 market may need to adjust their budget and their expectations. The table below illustrates the difference in monthly mortgage payments for a few common mortgage amounts.

Home sales in the Lansing area market remain normal for this time of year and the statistics are consistent with previous years. Of course, things may change, but rents have been steadily increasing, making it economically cheaper to buy than to rent.

Lansing Area Market View – November 1, 2022
• 717 currently listed homes for sale in the five county greater Lansing area.
• 250 homes with accepted offers. Awaiting inspections and/or appraisal.
• 302 homes listed as Pending. Have completed inspections and will soon close.
• 5684 homes that have closed since January 1, 2022.
• 7051 homes that have closed in the past 12 months.

Mortgage interest rates
30-year fixed – 7.08% ($6.71 per $1000)
15-year fixed – 6.36% ($8.63 per $1000)

Third quarter sales statistics (July – September) shows that the average sales price of Lansing area homes increased from $213,401 to $231,683 during the past twelve months. This 8.6% growth represents an average home value increase of $18,282.  (These figures include all sales throughout the Greater Lansing Association of Realtors.)

 Check out our Third Quarter 2022 Sales Statistics Link (below) for an update of sales activity by community. (Please note that pending sales, properties under contract that have not yet closed, are not factored into these statistics.)

Third Quarter 2022 Sales Statistics

Interest Rates
Throughout 2021 mortgage rates were continually between 2.8% and 3.5% making it easy for buyers to make extremely competitive offers for the few available home choices.  At the beginning of 2022, January mortgage rates for a 30-year conventional loan were at 3.55%.  However, mortgage rates on October 19, 2022, have risen to 6.93%. 

Financially, borrowing $200,000 in 2021 at 3.5% would have produced a monthly mortgage of $898. The same $200,000 mortgage at 6.93% will cost a buyer $1321.  An increase of $423 in the monthly payment. 

Selling as we enter the holiday season
Sellers who list their homes during the November and December will not likely see a large number of multiple offers with appraisal guarantees. Buyers are now being more conservative and holding back until the ‘perfect’ home becomes available. However, Holiday shoppers are likely to be serious buyers who need to move now or in early 2023.

With home sales, the purchase price of the home means something different to sellers and buyers. Sellers are concerned with how much their home will sell for.  Buyers purchasing with mortgage financing are concerned about budgeting for the monthly payment.

For Buyers interest rates greatly impact the affordability of a home.
Mortgage interest rates below 3.5%, which had become a standard for the past five years, began to rise at the beginning of 2022.  As we close out the second quarter of the year (June 30) interest rates have escalated to 5.81%.

A rate of 3.5% on a 30-year fixed rate mortgage translates to $4.49 per $1000. A buyer borrowing $200,000 at 3.5% this past December would have budgeted for a monthly loan payment of $898. Borrowing the same amount today will result in a payment of $1175. A difference of $277.

For Sellers, higher rates will push some buyer out of the market.
Rising interest rates make it more expensive to get a mortgage. This lowers demand and competition for homes. As cautious buyers rethink what is affordable, sellers may be presented with fewer offers, which may not be excessively above asking price.

However, sellers shouldn’t worry. There will be a short slowdown as buyers adjust to the new rates, but there are still too few available homes to satisfy demand. Buyers facing ‘mortgage shock’ will also see increasing rental rates and again be budgeting for a home purchase.

Market  View – July 1, 2022
• 556 currently listed homes for sale in the five county greater Lansing area.
• 348  homes have accepted offers. Awaiting inspections and/or appraisal.
• 482 homes are listed as Pending. Have completed inspections and will soon close.
• 3244 homes have closed since January 1, 2022.

Mortgage interest rates
30 year fixed – 5.81% ($5.87 per $1000)
15 year fixed – 4.92% ($7.86 per $1000)

As Russia’s invasion of Ukraine continues, the real estate industry in the U.S. is beginning to ask questions. How will the war affect the economy and how will it impact the housing market? At the very least, global conflict is unnerving, but is there hidden opportunity for American homebuyers?

According to REALTOR Magazine, stocks and cryptocurrency have been volatile. As sources of payment for homes, these may impact the real estate market.  Inflation is at a 40-year high, and only likely to get worse. Household budgets are already being tested with rising oil, gas and food prices. Rents, home prices and new construction are more expensive. Lumber prices have soared 40% in the last year. Higher mortgage rates will slow homebuying demand, says Robert Dietz, chief economist for the National Association of Home Builders.

When consumers at any level get nervous, they tend to curtail spending, particularly for large purchases like homes. “The impact on the U.S. housing markets from the Russia-Ukraine conflict has been muted so far,” George Ratiu, manager of economic research at Realtor.com, told Fortune.com. But an escalation of the European crisis could lead to more trade route and supply chain problems and higher prices, he said.

As investors reallocate their portfolios toward U.S. Treasuries, it could cause interest rates to fall. But if oil prices remain above the $100/barrel level, inflation continues, and interest rates and adjustable rates increase, the impact on the housing market could be negative, causing home sellers to lower prices.