As the economy continues to improve, mortgage rates are expected to decline, potentially falling as low as 4% in the second half of 2023. The decelerating inflation rate is the key reason for this forecast, with consumer prices falling to their lowest level in 2022 at 7.1%. This downward trend is expected to continue, potentially bringing buyers back to the market.
One contributing factor to the continuing decline in inflation is the increasing rent that people pay and the equivalent rent owners would have paid. These measures have seen significant annual gains of 7.9% and 7.1%, respectively, due to a housing shortage and historically low rental vacancy rates. However, lagging data shows that the housing shortage is not as severe as previously thought, with the rental vacancy rate increasing from 5.8% to 6% in the third quarter of 2022.
In addition, multifamily housing starts hit their highest level in nearly 40 years, with apartment vacancy rates expected to rise further and rent growth slowing down. Overall, this will contribute to a further decline in consumer prices.
The National Association of Realtors (NAR) has advocated for converting vacant commercial space into residential units through funding and tax credit incentives. Furthermore, financial incentives to rehab dilapidated, abandoned homes in major cities will help increase housing supply and neighborhood safety.
While the job market remains strong, the first-time buyer share of home sales has remained low at only 28% in November. However, this figure is up from 26% in November 2021. According to NAR’s 2022 Profile of Home Buyers and Sellers, the annual share of first-time buyers was the lowest since NAR began tracking the data.
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