Mortgage purchase index was 41% lower year over year, existing homes sales declined by 36.9% in January 2023. It is all bad news for the housing market. How does this impact the overall US economy?
Mortgage Purchase Index Was 41% Lower Year Over Year
Recent news reports of more bad news for the housing market have been troubling for many across the country. The Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey reported that mortgage applications have decreased 13.3 percent in one week, and the unadjusted Purchase Index dropped 4 percent as of February 17th, 2023 compared to the previous week. In addition, when compared to the same time last year, the Index was 41 percent lower. Unfortunately, mortgage rates have also increased significantly with a 30-year fixed rate of 6.62 percent – this is the highest seen since November 2022, according to Joel Kan, MBA’s Vice President and Deputy Chief Economist. . It’s no surprise that more bad news from the housing market can leave people feeling uneasy; however, it’s important to stay informed so that individuals can best prepare for negative circumstances that could arise.
Existing Homes Sales Declined by 36.9% in January 2023
It is a troubling time for homebuyers and sellers alike, with existing home sales declining year over year according to the National Association of Realtors. The latest analysis shows that in January 2023, not only were existing home sales down 36.9%, and also marked the twelfth consecutive month of decline. To further complicate matters, there was a month-over-month decrease of .7%. In more positive news, the median sales price rose 1.3% to $359,000 on a year-over-year basis. The high mortgage rates have had a notable impact on the housing market, leaving prospective buyers and sellers with an unenviable conundrum.
What is Next For Mortgage Rates?
As inflation remains high, most leading economists are expecting the Fed to respond with increases to the federal funds rate in their attempt to slow inflation. However, most agree that increases will occur at a slower pace than what we saw in 2022. Since mortgage rates generally follow the path of the federal funds rate, it is logical to assume that consumers should expect more increases in mortgage rates. What’s more, experts do not anticipate that mortgage rates should drop and think homeowners should plan for increases over the course of this year instead.
January Jobs Report Was Great News
The January 2023 labor report provided great news, with job growth totaling over 500,000 and the unemployment rate reaching a record low of 3.4%. This is certainly encouraging news and provides a huge sense of relief to job seekers. Although the great news seems like a positive step forward, it may lead to some difficulties in other areas – especially when it comes to financial matters. An increase in job growth combined with high inflation may cause the Federal Reserve to raise interest rates even higher than initially anticipated as a step towards cooling down economic activity. Such action could have major implications of placing further strain on households due to raised mortgage payments and car loan costs that can become increasingly more difficult to manage for already financially burdened citizens.
Will The US Experience a Recession?
To offset the impacts of sky-high inflation, the objective of raising interest rates is to decrease economic activity and increase unemployment. It is expected that slowing down the economy and increasing unemployment will reduce demand for goods and services, thus controlling inflation. While it was anticipated, the downturn in the housing market resulting from higher interest rates has still been dramatic. Usually, there is a lag between the time when interest rates are raised and its ripple effects throughout the rest of the economy. The housing market downturn may be a sign of what is to occur with other parts of the economy in due time. Predictions on how this action will affect the overall economy remain uncertain, yet all signs point towards an impending slowdown and maybe a recession. Keep your eyes peeled for news as more information arises about what this change could mean for our lives and financial futures.