Midwest Shines Bright Amidst Gloomy U.S. Housing Market

With mortgage rates spiking above 7% for the first time in 20 years, the pandemic-fueled housing boom came to a screeching halt in 2022.

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The after-effects of easy monetary policy, skyrocketing energy prices, and supply chain issues converged to bring inflation to a boil. In response, the Federal Reserve hiked its target interest rate by more than 4% in a matter of months, putting an end to historically low mortgage rates and sparking a housing affordability crisis that is expected to continue into 2023 and beyond.

According to Lawrence Yun, the National Association of Realtors' chief economist, “after a big boom over the past two years, there will essentially be no change nationally in home prices in 2023.”

Mortgage Rates to Stabilize at New Normal

While experts disagree on exactly where mortgage rates will end up in 2023, they all agree that we won't see the historic lows set in 2021 any time soon. Yun believes that mortgage rates may have already peaked and expects rates to slowly settle to 5.7% by the end of the year.

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On the other end of the spectrum, Danielle Hale, chief economist at Realtor.com, predicts average rates will rise in early 2023 to 7.4% before retreating to 7.1% at year-end.

Surging interest rates are affecting not only affordability but also the number of houses available to buy. According to Zillow researchers, “high mortgage rates are not only pushing buyers to the sidelines, they're tanking new inventory as homeowners decide to hang on to their current houses and low rates.”

Yun agrees with this assessment, predicting a 6.8% decline in home sales in 2023, with at least part of the softening due to homeowners unwilling to trade their sub-3% mortgage for a much higher one and deciding to forego selling.

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