Snapshot: Watching the Dip in Housing

The Federal Reserve raised the target Fed funds rate seven times in 2022 and again at their February 2023 meeting. When this happens, business and personal loan rates typically also go up.

One sector in which the Fed’s actions can be clearly felt is housing since the majority of US home purchases involve mortgages.

At the end of January 2023, the 30-year mortgage rate fell to 6.09%, according to Freddie Mac, down nearly a percentage point from its 2022 peak. But this was still 2.54% higher than in January 2022.

Goldman Sachs Global Investment Research has developed a proprietary GS Housing Activity scale that offers an analysis of the relative historical strength of the housing market from 0 to 10.

The scale recently moved down from 5 (the long-term average) to 4, showing an ongoing weakening that seems mostly due to constrained affordability.

So here are the details of the housing picture for early 2023:

• Home sales are down 37% year over year (YOY), according to national real estate brokerage Redfin.
• Prices have declined on 6% of active listings, up from 2% a year ago.
• Mortgage purchase applications were down 41% YOY in January, slightly worse than the 40% decline in December.
• January sale prices were 11% lower than their June peak, although they were up 1% YOY.

If you’re thinking about selling or buying, you’re probably wondering what’s to come in months ahead.

Unfortunately, housing data is as mixed as the economic picture: volatile mortgage rates, dropping prices, limited housing supply and the underlying strength in employment and wages. Because of this, our researchers believe housing conditions are likely to be volatile for the next few months, at least.

Keep an eye out for potential further mortgage rate drops, which could motivate prospective buyers, while rate hikes, inflation and growth concerns could keep them on the sidelines.