The Daily Money: Locked-in mortgage rates hobbled the housing market in 2023
Happy New Year! It's Daniel de Visé with your Daily Money.
No other phrase defined the 2023 housing market like “mortgage rate lock-in effect” – a phenomenon that brought the industry to a standstill, putting downward pressure on everything from inventory levels to home sales.
It signifies that 85% of current mortgage holders are locked into sub-5%, pandemic-era mortgage interest rates, which acted as a disincentive for them to sell their home and buy another at a higher rate. Rates peaked at 7.79% in the week ending Oct. 26, according to Freddie Mac.
But will things change this year?
There are signs that market conditions will be improving, Swapna Venugopal Ramaswamy reports. Mortgage rates dropped steadily over the past seven weeks, averaging 6.61 % for a 30-year fixed mortgage in the week ending Dec. 28.
The lower mortgage rates provided a boost to existing-home sales, which rose in November, up 0.8% from October, breaking a streak of five consecutive monthly declines, according to the National Association of Realtors.
Economic outlook brightens for 2024
This was the year that the post-COVID economy was finally supposed to stop defying gravity and topple into a recession.
Instead, the stock market is roaring, Paul Davidson reports, fed by the growing belief that the Federal Reserve is on track to wrestle down inflation without causing a downturn, a rare feat known as a “soft landing.”
To be sure, growth is expected to slow amid the delayed effects of the Fed’s aggressive interest rate hikes, the depletion of households’ excess pandemic savings and a pullback in federal government spending.
But other factors are likely to keep the economy afloat, forecasters say, including near-record home and stock prices, a further easing of inflation to or near the Fed’s 2% goal, and the central bank’s tentative plans to cut interest rates more sharply than previously anticipated.
“2023 was a very good year,” says Mark Zandi, chief economist of Moody’s Analytics. “2024 will just be a good year.”
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Each weekday, The Daily Money delivers the best consumer news from Paste BN. We break down financial news and provide the TLDR version: how decisions by the Federal Reserve, government and companies impact you.