News and Analysis

Home Prices, Mortgage Rates Expected To Stay Elevated Through Next Year
Suburban homes photo - stock photo
Blake Callahan via Getty Images

The housing market is expected to cool as demand moderates, according to a Wednesday report from government-backed mortgage enterprise Freddie Mac.

The company’s most recent Quarterly Forecast predicts that 30-year fixed-rate mortgages will average 5.0% in 2022 and 5.1% in 2023, while total home sales will slow from 6 million to 5.4 million.

“The Federal Reserve’s action to help manage inflation has created significant volatility in mortgage rates and, by extension, the housing market,” Freddie Mac Chief Economist Sam Khater said in a press release. “Although house price appreciation will grow at a more moderate rate, home prices remain high relative to homebuyer incomes. Taken together, these factors are exacerbating affordability challenges and causing a slowdown in the housing market.”

Indeed, Freddie Mac predicts that home prices will grow at 4% in 2023 — a relative slowdown from 17.8% in 2021 and 12.8% in 2022. In the first quarter of 2022, the median sale price of a home in the United States was $428,700, according to data from the U.S. Department of Housing and Urban Development, marking a 33% rise from $322,600 in the second quarter of 2020.

“The housing market has gone through booms and busts before,” Heritage Foundation research fellow Joel Griffith told The Daily Wire. “However, home costs now — in terms of inflation-adjusted prices and prices to median household income — are at all-time record highs. With interest rates more than doubling this past year, mortgage payments on a typical home have gone up more than 50% in many parts of the nation.”

Indeed, the 30-year fixed-rate mortgage began climbing at the beginning of 2022, according to data from Freddie Mac. Beginning at slightly over 3% in January, mortgage rates neared 6% in June and moderated to 5.5% as of Thursday.

Griffith pointed to monetary stimulus from the Federal Reserve as a driver behind housing market disruptions. In response to COVID and the lockdown-induced recession, the central bank lowered interest rate targets and ramped up its purchase of mortgage-backed securities, leading to a decline in mortgage costs even as home prices continued to rise.

“The current plunge in home affordability is largely the result of continued heavy government subsidies of the housing market — thanks to mortgage giants Fannie Mae and Freddie Mac — combined with trillions of dollars of mortgage-backed securities purchased by the Federal Reserve,” Griffith continued. “To restore housing affordability, the government and central bank footprints must be diminished and regulations for new housing supply diminished. Otherwise, expect home prices to remain out of reach for far too many families.”

On the supply side, construction of new long-term housing had already been slowing over the past several decades — resulting in 6 million too few homes on the market. As costs for lumber, steel, copper, and other raw materials began to rise amid pervasive supply chain issues induced by global lockdowns, labor shortages diminished the number of builders and contractors available to work on housing projects.

“Housing inventory has rebounded somewhat from the lows earlier this year. However, future inventory will depend on housing permits being granted on the local level, borrowers retaining access to credit, and prices becoming more affordable,” Griffith remarked. “Affordability works two ways: enabling new buyers to enter the market and making it possible for sellers to purchase a new home — often larger — at a reasonable price.”

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