Economists at Wells Fargo on Wednesday predicted existing single-family home prices will be driven down in 2023 by rising mortgage rates, which have already eroded affordability and driven many buyers out of the market. The average rate for a 30-year mortgage shot up to 6.75% last week, the highest since 2006 and more than double what it was last year, according to the Mortgage Bankers Association. The median existing home sold for $389,500 in August, according to the National Association of Realtors, and a 5.5% decrease would be a $21,423 drop. But that still leaves prices above what they were in 2021 since double-digit yearly increases have been the norm over the past year. Record low mortgage rates during the pandemic, as well as demand for space to support the new work-from-home lifestyle, have driven housing prices sharply upwards. There are ample signs a slowdown is already well under way. Home prices fell in August for the first time since 2012, according to the S&P Case-Shiller National Home Price Index. The volume of mortgage applications, both for new purchases and refinancing, fell to its lowest since 1997 last week, the MBA said. Indeed, Federal Reserve Chair Jerome Powell said the housing market is due for a “difficult correction.” The housing slowdown is a result of the central bank’s recent campaign of anti-inflation interest rate hikes, which have raised borrowing costs for all kinds of loans, including mortgages.While a decrease in prices may be welcome news to buyers who have been unable to afford a home, it poses risks to the broader economy, especially because foreign countries are facing similar trends. Economists at Oxford Economics said the outlook for the housing market was the “most worrying since 2007-2008” when a housing market crash led to a financial crisis and the Great Recession. Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com.
