HUD Articles

The national average 30-year fixed mortgage rate decreased by eight basis points in June but ticked back up again the last few weeks. The rate now sits at 6.96% for the week ending July 13—a 15-basis-point increase from the previous week—according to Freddie Mac. A basis point is one-hundredth of one percentage point.

Meanwhile, existing home sales remained relatively flat in May, rising 0.2%, according to the National Association of Realtors (NAR).

Though the median existing-home sales price edged lower year-over-year for the fourth consecutive month—a promising sign for home shoppers—experts don’t expect substantial, nationwide price declines anytime soon.

Despite high mortgage rates, the market remains as competitive as ever thanks to strong demand coupled with tight inventory supply, due, in part, to those who purchased homes in recent years at record-low interest rates staying put. These and other factors form a perfect affordability crisis storm that continues to sideline many aspiring homeowners.

While home prices aren’t as high as the record prices of June 2022, data suggest that where home prices dip or climb this year remains heavily region-specific. For instance, in May, prices grew in the Northeast and Midwest but fell in the West.

Housing market activity remains weak overall, thanks to high mortgage rates, elevated home prices and constrained housing inventory—a trifecta of headwinds perpetuating the housing affordability crisis. At the same time, fears of ongoing inflation, an impending recession and more interest rate hikes still hang in the air.

Following a surge in the first week of June, mortgage rates wobbled in a narrow range as Federal Reserve policymakers voted to hold off on raising the federal funds rate at its June meeting.

The decision to pause broke a rapid 15-month rate-hiking streak the Fed unleashed to rein in runaway inflation. The federal funds rate is the rate financial institutions lend to each other overnight.

Even so, mortgage rates remain high partly due to the central bank’s aggressive series of rate increases. The federal funds rate hovered near zero in March 2022 when the Fed began raising rates. The rate range is now 5% to 5.25%. A Fed rate hike indirectly impacts long-term home loans, such as 30-year, fixed-rate mortgages.

The Fed doesn’t plan to stop there, revealing new projections that the rate could go as high as 5.6% by the end of 2023. The Fed is expected to raise its benchmark interest rate again at its July 26 meeting.

In prepared remarks to lawmakers during his Semiannual Monetary Policy Report to Congress, Federal Reserve Chairman Jerome Powell testified that the Fed’s process to get inflation down to its 2% target goal still has “a long way to go.”

At the same time, in response to questions from Representative Steven Horsford (D-NV), Powell pointed out that overheated home prices have flattened out from two years ago due to the Fed raising rates.

Nonetheless, perpetually-high home prices, combined with mortgage rates holding steady well over 6%, have drastically weakened the housing market.

Mortgage rates may stay there in the coming months. At a June European Central Bank Forum, Powell signaled two more interest rate hikes this year.

Some Experts Foresee Sluggish Housing Market Recovery

Rates hit 6.96% on July 13—the highest since November 2022.

Although weekly averages for 30-year mortgage rates are down from their fall 2022 peak, if the ongoing oscillation between 6.5% and 7% continues—or rates break through 7% again—it’s hard to imagine housing market conditions significantly improving anytime soon.

Considering there are still 91% of borrowers with mortgage rates below 6% and roughly 82% of homeowners sitting on rates below 5%, according to Redfin, a sustained uptick in mortgage applications isn’t likely to materialize in the immediate future.

“Purchase applications increased for the third consecutive week to the highest level of activity since early May but remained more than 20% lower than year-ago levels,” said Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association. Existing-home sales continued to be held back by a lack of for-sale inventory as many potential sellers are holding on to their lower-rate mortgages.”

Mortgage originations amounted to only $344 billion in the first quarter of 2023, their lowest total since the second quarter of 2014, according to a Freddie Mac report. Meanwhile, though existing-home sales did record a nominal gain of 0.2% from April to May, sales are down 20.4% from a year ago, per NAR.

“If current economic conditions persist, with elevated mortgage rates and home prices amid scarce inventory, the market is likely in for a long, slow climb and a few bumps along the way,” said Danielle Hale, chief economist at Realtor.com, in an emailed statement.

Housing Inventory Outlook for July 2023

Low housing inventory has been a challenge since the 2008 housing crash when the construction of new homes plummeted. It still hasn’t fully recovered—and won’t in 2023.

Housing supply remains at near historic lows—especially entry-level supply-–consequently propping up demand and sustaining higher home prices.

Even so, new single-family homes have been coming to the rescue—at least to some extent—enticing eager shoppers frustrated by the limited resale inventory, despite the comparatively higher price tag of new construction.

New home sales jumped 12% between April and May, with 763,000 new single-family homes selling in May, the highest volume since February 2022. The median sales price for a new home was $416,300, according to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD).

Sales of new homes surged by 20% year-over-year while existing-home sales sagged.

“Newly constructed homes are selling at a pace reminiscent of pre-pandemic times because of abundant inventory in that sector, said Lawrence Yun, chief economist at NAR, in a report. “However, existing-home sales activity is down sizably due to the current supply being roughly half the level of 2019.”

Inventory of unsold, existing homes grew by 3.8% between April and May, yet this only lifts existing inventory to a three-month supply at the current sales pace. Many experts say a balanced housing market has four to six months of inventory.

“Inventory is approximately 46% below the historical average dating back to 1999,” says Jack Macdowell, chief investment officer and co-founder at Palisades Group.

The country ultimately needs 4.3 million more homes, according to Zillow analysis.

“There are simply not enough homes for millions of people,” said Orphe Divounguy, senior economist at Zillow, in a press release. “Unless we address the shortage of smaller, more affordable, starter-type homes, we risk leaving families without a seat—and it will only get worse over time.”

Yet, with reportedly 90% of homeowners sitting on mortgage rates below 6%, industry experts have a gloomy outlook on when inventory will eventually normalize.

“We think that it is highly unlikely that the inventory problem will be resolved in 2023,” Macdowell says.

Housing Starts Forecast 2023

Meanwhile, there are positive signs for construction in the homebuilding realm.

Single-family construction starts rose for the fourth consecutive month, jumping 18.5% in April as applications for building permits rose 4.8% from the previous month, according to the Census Bureau and HUD.

Builder confidence also continues to grow.

The most recent National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) that tracks builder sentiment jumped from 50 to 55. This is the first time in 11 months that the index moved squarely into positive territory.

A reading of 50 or above means more builders see good conditions ahead for new construction.

Builders have also been gradually pulling back on sales incentives to lure buyers over the past six months, with 56% of builders offering incentives in June compared to 62% in December 2022.

Nonetheless, even as builders work to meet the demand, they face headwinds, including costlier supplies, challenges obtaining lots, a shortage of construction workers and tighter credit conditions due to the Fed’s aggressive interest rate hikes.

“Homeowners, homebuyers, lenders, as well as builders, are trying to adapt and predict interest rates, home prices, supply, demand and the potential for a Fed-induced recession,” says Macdowell. “As a result, builders may be reluctant to start new projects that would bring needed housing product to the market.”

Despite signs that home prices are beginning to weaken, the country is contending with a housing affordability crisis thanks to a meager housing supply and persistently high mortgage rates and sales prices.

The latest Federal Housing Finance Authority (FHFA) House Price Index (HPI) shows national home prices rose at a seasonally adjusted rate of 0.7% between March and April and 3.1% from a year ago, culminating in the index reaching a new record high of 401.2 in April. The FHFA HPI is a collection of indices measuring single-family home values across all 50 states and over 400 cities using data derived from conforming mortgages provided by Fannie Mae and Freddie Mac.

However, annual price changes across regions tell a more nuanced story.

The census divisions East South Central and New England showed the biggest 12-month price gains at 6.1% and 6%, respectively, according to the index. The Pacific experienced the sharpest price declines from last year at -3.8%.

Though existing-home median sales prices are down from their eye-watering June 2022 peaks, prices have been creeping back up since February.

The median existing-home sales price in May rose to $396,100, according to the National Association of Realtors (NAR). However, this is down 3.1% from a year ago and the fourth consecutive month of year-over-year national home price declines after a 131-month streak of record increases.

Though year-over-year declines are a promising sign for homebuyers, if you make $75,000 or less, chances are you won’t be able to purchase a home in today’s market. Those earning $75,000 a year can afford a $256,000 home, yet homes at this price or less accounted for only 23% of the existing home listings in April 2023, according to a Realtor.com and NAR Home Affordability & Supply Report.

“Unless we address the shortage of smaller, more affordable, starter-type homes, we risk leaving families without a seat–and it will only get worse over time,” Divounguy said.