Mortgage rates are finally falling, but the average family still can’t afford a home

SIMONE DEL ROSARIO: Wells Fargo recently announced its stepping back from the mortgage space. The former number one lender will be leaving a void but its decision is made in the landscape of plunging mortgage demand higher interest rates and low affordability. 

Nadia Evangelou is with me to talk about how these factors affect the housing market and those looking to buy and sell. Nadia is a senior economist and director of forecasting at the National Association of Realtors. Nadia, thanks for being with me today.

NADIA EVANGELOU: Good morning, Simone. And thank you for having me here today.

SIMONE DEL ROSARIO: Wells Fargo is one of the top lenders in the country and mortgage lending is a multi trillion dollar industry. Do you think that’s their step back is going to be pushing customers to non bank lenders like Rocket Mortgage? And how is that gonna affect people looking to secure a loan?

NADIA EVANGELOU: Yes, indeed, Wells Fargo recently announced the decision to move back and mortgages and this will have an effect on homebuyers. I think for the short run until other lenders will step in this. This actually reminds me when Bank of America for example, and JP Morgan did the same after the 2008 housing downturn. 

And then Rocket Mortgage, Previously, Quicken Loans came to the market offering mortgages and now it’s the top residential mortgage lender. So for other lenders these move, this could mean less competition for them. 

But for homebuyers, that could mean fewer options. But I think this will affect only for the short run.

SIMONE DEL ROSARIO: Let’s move on to housing affordability for several months, actually six out of the last seven, a family with a median income has not been able to afford the median priced home. What do you see happening with housing affordability? And more importantly, where is it heading.

NADIA EVANGELOU: Of course, housing affordability hit record lows in 2022, owning a home become became 60% More expensive compared to the previous year forcing many buyers out of the market, mortgage rates may have dropped to near 6%. And this is very welcoming, this is what we want to see. 

But for example, first time homebuyers still earn 30,000 less than the income needed to purchase the starter home. As a result, less than about 20% of the renters can currently afford to buy the starter home. In addition, what we see also is that there are significant housing affordability inequalities among income groups, specifically middle income buyers. 

So in a balanced market for example, middle income buyers should be able to afford to buy half of the homes listed for sale. However these buyers can currently afford to buy only 20% of all available at least last homeownership rate may continue to fall in 2023. As the share of first time homebuyers will likely shrink even further for from the 2022’s all time lows. Housing Affordability is definitely going to be the main driver of the housing market for 2023.

SIMONE DEL ROSARIO: With demand for housing really dropping because people simply can’t afford it, you would think that you would start to see a more of a depression in housing prices. That’s not really something we’re seeing to a great extent do you think that housing prices are going to come down in 2023.

NADIA EVANGELOU: So in 2023, price gains will accelerate even further, but we don’t expect prices to fall. Actually, we expect to keep an annual appreciation flat throughout 2023. With half of the area’s across the country to experience small price gains, and the other half areas seem like some small price declines, generally higher price gain. higher mortgage rates make prices cool. However, home prices are still higher than a year ago. even though there are significantly fewer buyers in the market demand continue outpacing supply. 

SIMONE DEL ROSARIO: Why is the supply is so low then because it seems like this would be bucking the supply demand trends that you would normally see low demand, your prices would go down? What’s happening with demand here? Why aren’t there more available homes?

NADIA EVANGELOU: Yeah, we expect actually in 2023 inventory to remain tight with fewer new homes to start construction. 

And this is what we see and probably fewer existing homes to be listed in 2023. Due to the lock in effect housing inventory, we expect to remain limited this year in 2023 and probably 2024 as well. 

So due to persistent building material bottleneck, the number of housing start will continue to be below the historical average of the 1.5 million homes and we want to have an actual single family construction will be most impacted. And this is the type of home that homebuyers usually it’s the most popular type of houses that homebuyers want to purchase. And while 2022 was the first year with a decline of single family starts seeing 2011 Single Family construction is forecasted to experience additional declines in 2023. 

Meanwhile, as I mentioned, due to the lock in effect, fewer homeowners are expected to sell their homes and purchase another as mortgage rates are substantially higher than in 2021. And typically, higher mortgage rates lead to lower mobility rates over time. Nevertheless, it’s very interesting to see that the number of homes under construction is at record highs, especially for apartment buildings. The completion of these homes may help with the price and rank increases that we have.

SIMONE DEL ROSARIO: Are you looking forward into 2024 at all and if so, what are you seeing there?

NADIA EVANGELOU: So for 2024 We expect housing market to rebound to 2023 This year will be a turning point for 20 year for the housing market and then in 2024 expansion to rebound with a price gains of neural level about like 5% and existing home sales to rebound with about like 10% gains when we compare to be that 2023. So better to come.

SIMONE DEL ROSARIO: Well, so good news for people who want to sell their homes but maybe not so much for people who want to enter the market. Nadia Evangelou, Senior Economist and director of forecasting at National Association of REALTORS really appreciate your insights today.

NADIA EVANGELOU: Thank you so much. Bye bye.