Housing Report – Year End 2022

Brad O’Connor directly addresses camera: What a difference a year can make. In December of 2021, the average 30 year fixed mortgage rate in the US was about 3.1%. Based on data published by Freddie Mac. And that, by the way, was the highest monthly average rate we had seen since June of 2020.

Fast forward just 12 months to December of 2022 and the U.S. housing market was facing an average 30 year fixed mortgage rate of nearly 6.4%. The impact of that kind of change can’t be overstated. Let’s consider a 30 year fixed rate loan on a $300,000 home with 20% down.

At a rate of 3.1%. The monthly principal and interest payment on that mortgage would be $1,025. But at 6.4%, that’s a 1500 dollar monthly payment, a nearly 50% increase. It should come as no surprise then that we had significantly fewer homes go under contract in December 2022 than a year ago, in December 2021. According to the latest statistics from Florida Realtors. New pending sales of single family homes were down 31 and a half percent year over year in December. One of the only silver linings here is that this was actually an improvement over the year over year declines of 41 and 37% reported for October and November, when rates were at higher average levels of about 6.9 and 6.8%, respectively. There is increasing consensus among economists that inflation has likely peaked and as a result, mortgage rates have topped out as well. Should this prove to be true, there will still be a big question looming over the housing market here in Florida and the rest of the US, which is how slowly and
how much will mortgage rates recede from here? Unfortunately, there’s no easy answer to that. Interest rates are notoriously difficult to forecast. Even in normal times when the Federal Reserve is not actively shifting its monetary policy to this degree.

In December, several groups of housing market analysts and economists released predictions for where the average 30 year fixed mortgage rate will be in the fourth quarter of 2023. Here’s a few examples. The Mortgage Bankers Association estimated a year end rate of 5.2%.

Meanwhile, both Redfin and the National Association of Realtors estimated a rate of 5.8%. Fannie Mae’s forecast came in a little higher at 6%, and Realtor.com predicted very little change in the mortgage rate over the course of the year, resulting in a 7.1% average rate at the end of 2023.

That’s a fairly wide spread and we’re not even considering that these are just the baseline forecasts for each of these forecasting outfits. The actual average mortgage rate has also already fallen by almost half a percentage point since most of these forecasts were published.

So if they were to issue new estimates, it’s likely that in most cases the revised estimates would be a bit lower on average. Nevertheless, there’s a general consensus among most forecasters right now that the baseline case is for rates to move in a generally downward direction over the course of 2023.

That would likely result in a gradual return to monthly levels of home sales, similar to those we experienced in the last two pre-pandemic years of 2019 and 2018. We are not currently too far below those levels already. In December, new pending sales of single family homes in Florida were about 14% lower than in 2019 and 5.4% lower than in 2018. In the meantime, though, we’re going to continue to see some rough numbers on the sales side, particularly when it comes to year over year figures.

Most sales that closed in December were subject to interest rates that were even higher than they are today, since most of them went under contract more than a month prior to closing. Closed sales of existing Florida single family homes in December were down over 36% while over in the townhouse and condo category, closings were down 40%.

Given that the housing market was still red hot at the beginning of the year, however, the difference between the annual totals for 2022 and 2021 were comparatively smaller, with annual closed sales falling by 18 and 22% in these property type categories, respectively.

New listings in December continue to be constrained by high mortgage rates and a general sense of economic uncertainty among households. New listings of single family homes were only down 3% overall in 2022, but recently have been falling off at a greater rate.

In December, they were down close to 18% year over year. Over in the townhouse and condo category, the December decline was a relatively smaller 12.2%. But overall for the year. Listings were down 7.6%. These declines in new listings are a double edged sword.

They’re limiting options for buyers, of course, but in doing so, they’re also keeping the ratio of sellers to buyers from falling at a more rapid clip, which is keeping inventory growth modest and prices stable. The median price for closed single family home sales in December was $395,000, a 5.6% year over year increase over in the townhouse and condo category. The median price was up 8.8% to $310,000. These are the statewide numbers, of course, but the 2023 market is going to vary from local area to local area. Be sure you have a good handle on your local market statistics and trends as we move into 2023.

Some of our markets here in Florida now have inventories that are close to pre-pandemic levels, whereas others only saw a modest increase in 2022. And in some markets, you’ll see a stark difference in this trend from zip code to zip code or city to city.

So Florida Realtors members be sure to take advantage of one of your very best member benefits, SunStats, to stay on top of the market and help your customers achieve their homeownership dreams. See you all next month.