Some Highlights

• With ongoing high inflation pushing up everyday costs, some people are worried that’ll create a flood of foreclosures. Here’s why that’s unlikely.
• Fewer people are seriously behind on mortgage payments right now. If foreclosures were going to rise a lot, more people would need to be late on their payments.
• Since most are paying on time, a wave isn’t coming. If you’re concerned about a flood of foreclosures, the data shows that’s not likely.

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The rising cost of just about everything from groceries to gas right now is leading to speculation that more people won’t be able to afford their mortgage payments. And that’s creating concern that a lot of foreclosures are on the horizon. While it’s true that foreclosure filings have gone up a bit compared to last year, experts say a flood of foreclosures isn’t coming.

Take it from Bill McBride of Calculated Risk. McBride is an expert on the housing market, and after closely following the data and market environment leading up to the crash, he was able to see the foreclosures coming in 2008. With the same careful eye and analysis, he has a different take on what’s ahead in the current market:

“There will not be a foreclosure crisis this time.”

Let’s look at why another flood is so unlikely.

There Aren’t Many Homeowners Who Are Seriously Behind on Their Mortgage Payments

One of the main reasons there were so many foreclosures during the last housing crash was because relaxed lending standards made it easy for people to take out mortgages, even if they couldn’t show that they’d be able to pay them back. At that time, lenders weren’t being very strict when assessing applicant credit scores, income levels, employment status, and debt-to-income ratio.

But now, lending standards have tightened, leading to more qualified buyers who can afford to make their mortgage payments. And data from Freddie Mac and Fannie Mae shows the number of homeowners who are seriously behind on their mortgage payments is declining (see graph below):

Molly Boese, Principal Economist at CoreLogic, explains just how few homeowners are struggling to make their mortgage payments:

“May’s overall mortgage delinquency rate matched the all-time low, and serious delinquencies followed suit. Furthermore, the rate of mortgages that were six months or more past due, a measure that ballooned in 2021, has receded to a level last observed in March 2020.”

Before there can be a significant rise in foreclosures, the number of people who can’t make their mortgage payments would need to rise. Since so many buyers are making their payments today, a wave of foreclosures isn’t likely.

Bottom Line

If you’re worried about a potential flood of foreclosures, know there’s nothing in the data today to suggest that’ll happen. In fact, qualified buyers are making their mortgage payments at a very high rate.

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As the Federal Reserve (the Fed) made moves this year to try to lower inflation, mortgage rates more than doubled – something that’s never happened before in a calendar year. This had a cascading impact on buyer activity, the balance between supply and demand, and ultimately home prices. And as all those things changed, some buyers and sellers put their plans on hold and decided to wait until the market felt a bit more predictable.

But what does that mean for next year? What everyone really wants is more stability in the market in 2023. For that to happen we’ll need to see the Fed bring inflation down even more and keep it there. Here’s what housing market experts say we can expect next year.

What’s Ahead for Mortgage Rates in 2023?

Moving forward, experts agree it’s still going to be all about inflation. If inflation is high, mortgage rates will be as well. But if inflation continues to fall, mortgage rates will likely respond. While there may be early signs inflation is easing as we round out this year, we’re not out of the woods just yet. Inflation is still something to watch in 2023.

Right now, experts are factoring all of this into their mortgage rate forecasts for next year. And if we average those forecasts together, experts say we can expect rates to stabilize a bit more in 2023. Whether that’s between 5.5% and 6.5%, it’s hard for experts to say exactly where they’ll land. But based on the average of their projections, a more predictable rate is likely ahead (see chart below):

That means, we’ll start the year out about where we are right now. But we could see rates tick down if inflation continues to drop. As Greg McBride, Chief Financial Analyst at Bankrate, explains:

“. . . mortgage rates could pull back meaningfully next year if inflation pressures ease.”

In the meantime, expect some volatility as rates will likely fluctuate in the weeks ahead. If we see inflation come back under control, that would be good news for the housing market.

What Will Happen to Home Prices Next Year?

Homes prices will always be defined by supply and demand. The more buyers and fewer homes there are on the market, the more home prices will rise. And that’s exactly what we saw during the pandemic.

But this year, things changed. We’ve seen home prices moderate and housing supply grow as buyer demand pulled back due to higher mortgage rates. The level of moderation has varied by local area – with the biggest changes happening in overheated markets. But do experts think that will continue?

The graph below shows the latest home price forecasts for 2023. As the different colored bars indicate, some experts are saying home prices will appreciate next year, and others are saying home prices will come down. But again, if we take the average of all the forecasts (shown in green), we can get a feel for what 2023 may hold.

The truth is probably somewhere in the middle. That means nationally, we’ll likely see relatively flat or neutral appreciation in 2023. As Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), says:

“After a big boom over the past two years, there will essentially be no change nationally . . . Half of the country may experience small price gains, while the other half may see slight price declines.”

Bottom Line

The 2023 housing market is going to be defined by mortgage rates, and rates will be determined by what happens with inflation. The best way to keep a pulse on what experts are projecting for next year is to lean on a trusted real estate advisor. Let’s connect.

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The 2022 housing market has been defined by two key things: inflation and rapidly rising mortgage rates. And in many ways, it’s put the market into a reset position.

As the Federal Reserve (the Fed) made moves this year to try to lower inflation, mortgage rates more than doubled – something that’s never happened before in a calendar year. This had a cascading impact on buyer activity, the balance between supply and demand, and ultimately home prices. And as all those things changed, some buyers and sellers put their plans on hold and decided to wait until the market felt a bit more predictable.

But what does that mean for next year? What everyone really wants is more stability in the market in 2023. For that to happen we’ll need to see the Fed bring inflation down even more and keep it there. Here’s what housing market experts say we can expect next year.

What’s Ahead for Mortgage Rates in 2023?

Moving forward, experts agree it’s still going to be all about inflation. If inflation is high, mortgage rates will be as well. But if inflation continues to fall, mortgage rates will likely respond. While there may be early signs inflation is easing as we round out this year, we’re not out of the woods just yet. Inflation is still something to watch in 2023.

Right now, experts are factoring all of this into their mortgage rate forecasts for next year. And if we average those forecasts together, experts say we can expect rates to stabilize a bit more in 2023. Whether that’s between 5.5% and 6.5%, it’s hard for experts to say exactly where they’ll land. But based on the average of their projections, a more predictable rate is likely ahead (see chart below):

That means, we’ll start the year out about where we are right now. But we could see rates tick down if inflation continues to drop. As Greg McBride, Chief Financial Analyst at Bankrate, explains:

“. . . mortgage rates could pull back meaningfully next year if inflation pressures ease.”

In the meantime, expect some volatility as rates will likely fluctuate in the weeks ahead. If we see inflation come back under control, that would be good news for the housing market.

What Will Happen to Home Prices Next Year?

Homes prices will always be defined by supply and demand. The more buyers and fewer homes there are on the market, the more home prices will rise. And that’s exactly what we saw during the pandemic.

But this year, things changed. We’ve seen home prices moderate and housing supply grow as buyer demand pulled back due to higher mortgage rates. The level of moderation has varied by local area – with the biggest changes happening in overheated markets. But do experts think that will continue?

The graph below shows the latest home price forecasts for 2023. As the different colored bars indicate, some experts are saying home prices will appreciate next year, and others are saying home prices will come down. But again, if we take the average of all the forecasts (shown in green), we can get a feel for what 2023 may hold.

The truth is probably somewhere in the middle. That means nationally, we’ll likely see relatively flat or neutral appreciation in 2023. As Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), says:

“After a big boom over the past two years, there will essentially be no change nationally . . . Half of the country may experience small price gains, while the other half may see slight price declines.”

Bottom Line

The 2023 housing market is going to be defined by mortgage rates, and rates will be determined by what happens with inflation. The best way to keep a pulse on what experts are projecting for next year is to lean on a trusted real estate advisor. Let’s connect.

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