What More Fed Hikes Could Mean for U.S. House Prices in 2023

After peaking at above 7% last November, the cost of a 30-year mortgage has fallen gradually, but the Fed may not be done with its rampage of rate hikes just yet. Fixed-income markets are implying that rate hikes may continue into June 2023, and according to Forbes, that increased pressure could spell trouble for the housing market.

Home prices are trending downward in a nationwide market correction, but after years of steady increases, housing costs remain elevated on a year-over-year basis. That lower affordability, coupled with rising rates, could lead to a more significant home sales slowdown ahead.

A key issue for many regions, including the U.S. west coast, is the affordability of housing. As house prices rise faster than incomes, so houses become less affordable. That’s what we’ve seen in the U.S. in recent years. However, low interest rates helped home-buyers afford a mortgage, even if the overall price of the home was high relative to their income levels.

Now, as mortgage rates rise sharply that picture is changing. The Atlanta Fed’s Housing Affordability Monitor currently estimates that housing affordability is returning to lows not seen since 2007. That’s largely because mortgage costs have doubled over the past year. Unfortunately, if the Fed continues to raise interest rates that’s unlikely to change. That could cause house prices in the U.S. to fall in 2023.

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