Fannie Mae’s 2023 Economic and Housing Growth Report projects housing will slow from its current pace over the forecast horizon. Furthermore, if mortgage rates continue to rise, multiple offer situations and waived contingencies may become less common.
“Mortgage rates have ratcheted up dramatically over the past few months, and historically such large movements have ended with a housing slowdown,” reports Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. “We expect home sales, house prices, and mortgage volumes to cool over the next two years. In particular, we expect house price growth to decelerate to a pace more consistent with income growth and interest rates.”
Housing Market Projections
Additional factors will also contribute to a market slowdown. “Households with a 3-percent, 30-year, fixed-rate mortgage are unlikely to give that up in favor of a mortgage closer to 5 percent, and we expect this so-called ‘lock-in’ effect to weigh on home sales," says Duncan. "Moreover, if mortgage rates remain relatively elevated, we expect the added affordability constraint to price out some would-be first-time homebuyers and contribute to the slowing of demand.”
South Shore Housing Market
According to Michelle Larnard, broker/owner of Michelle Larnard Real Estate, there are initial signs of a slight softening happening in the South Shore real estate market. “We are seeing more inventory hitting the market. As a result, our buyers are able to thoughtfully prepare their offers with a personal strategy prepared by our professional agents. In addition, our seller clients are less nervous about finding a place to go and are more willing to list their homes. If this trend continues, we will hopefully be looking at more balanced market conditions.”
New Construction v. Existing Home Sales
Another Fannie Mae prediction is a distinction between new construction homes and sales of existing homes. Sales of existing homes are projected to drop by 8.6% to 5.6 million while new home sales are expected to grow by 2.3% to 788,000. This is in large part due to higher mortgage rates and the faster pace of home building.
New home builders are working overtime across the nation, and the South Shore is right in step with this home building trend.
“In the past three years alone, our agency has represented developers on 25 new construction homes. At present, we are working on two new developments. One is a five home project in Norwell, MA that has already broken ground. The other is a 26 home development that is currently in the planning stages.”
What should buyers and sellers do to be successful in this unpredictable real estate market? First, both homeowners and home buyers need to be prepared before jumping into the market. Second, it is more important than ever to rely on local real estate professionals with experience in the local market who offer proper guidance to navigate these uncharted waters.