The year 2022 was an unprecedented year for mortgage rates, with rates doubling in a calendar year. While higher mortgage rates do not always correspond with lower home prices, 2022 saw a shift from a seller’s to a buyer’s market. The rise in mortgage rates led to a housing market top, which dampened home buyer demand and made some folks ineligible for home loan financing.
Mortgage Rates Are More Likely to Fall by 1% Than Home Prices by 11%.
Despite the rise in mortgage rates, lower mortgage rates rather than lower home prices, may improve housing affordability. As the vast majority of homeowners are not selling, home prices are expected to hold up, and mortgage rates have already come down. This would allow sellers to command a decent enough price, while also giving buyers the ability to afford a property, even if their down payment is slightly elevated based on a still-high asking price.
The above interpretation highlights the dynamic relationship between mortgage rates and home prices in the housing market. While historically, home prices have been downward sticky and mortgage rates are more likely to move by a percentage point, the unprecedented rise in mortgage rates in 2022 led to a shift in the housing market from sellers to buyers. However, the balance in the housing market may come from lower mortgage rates, rather than lower home prices, providing the opportunity for both buyers and sellers to benefit from a stable housing market.