Title: Housing Market Divided as Mortgage Rates Surge, Some Regions Thrive While Others Decline
Subtitle: Western Markets Hit Hard, Eastern Markets Show Resilience
Date: [Current Date]
Throughout the nation, the cost of mortgage borrowing has experienced a staggering surge since January 2022, with the average 30-year fixed mortgage rate escalating from a 3-handle to a 7-handle. However, the impact of this rate shock has been far from uniform, leading to a divided housing market.
According to the latest reading by the Freddie Mac House Price Index, 77 of the nation’s 100 largest housing markets saw prices rise between June 2022 and June 2023, while 23 major markets experienced a year-over-year decline.
The top 10 markets with the highest price increases are predominantly located east of the Rockies, including McAllen, Texas (+11.8%), Knoxville, Tenn. (+8.3%), and Omaha, Neb. (+8.1%). On the other hand, the 10 markets experiencing the most significant declines are primarily located in the Western region, including Boise City, Idaho (-10.5%), Austin, Texas (-10.2%), and Phoenix, Ariz. (-6.5%).
The division in the housing market can be attributed to several factors. Western housing markets, such as San Francisco and Denver, exhibit heightened sensitivity to interest rates due to their significant concentration of rate-sensitive industries, particularly the tech sector. Additionally, the elevated home prices in relation to local rents and incomes in these markets make them more susceptible to corrections triggered by mortgage rate shocks. These frothy home prices were a result of a housing shortage spanning a decade in the Western region, coupled with a tech boom that outperformed Eastern markets between 2012 and 2021.
In contrast, the eastern half of the country experienced less skewed fundamentals, such as house price-to-rent ratios, and a presence of less rate-sensitive industries. This relative affordability and cushioning from rate shocks helped mitigate housing declines during the correction in the latter half of 2022.
While 23 of the nation’s 100 largest housing markets are down year-over-year, only 3 of those markets saw a month-over-month decline between May 2023 and June 2023. This indicates that the tailwind created by the lack of existing inventory in the first half of 2023 was strong enough to overpower the headwind of deteriorated housing affordability in most markets.
The forecast model produced by Freddie Mac predicts a 2.9% fall in U.S. house prices this year and a further 1.3% decline in 2024. However, economists at Freddie Mac have expressed low confidence in their own model, stating that the current housing market conditions, including historic low inventory, may lead to a revision of their negative home price forecast.
As the housing market enters the seasonally weaker window in the second half of the year, some firms, including the AEI Housing Center, CoreLogic, and Zillow, believe that national house prices have bottomed. However, economists at Moody’s Analytics and Morgan Stanley anticipate further declines.
Stay updated on the housing market by following @NewsLambert on Twitter.
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