As the sluggish 2023 housing market retreats farther from view, new industry data points to reasons to be cautiously optimistic about the upcoming spring home-buying season.
Thanks to lower mortgage rates as of late, affordability pressures have eased. The share of income needed to buy a median home in the U.S. decreased by nearly 5 percentage points in December from October’s 28-year high, according to the February 2024 ICE Mortgage Monitor Report released Monday.
Mortgage rates, which hit nearly 8% in 2023, fell to 6.71% as of Jan. 24, down a full percentage point from October 2023, ICE reported. The housing inventory shortage also improved for the seventh consecutive month, which is good news for homebuyers who’ve been sidelined by a lack of homes to choose from.
Home-price growth expected to ‘moderate’
The ICE Home Price Index for December reveals an annual growth rate of 5.6% in home prices, up from 5.1% in November, according to the ICE report. While this points to the housing market picking up, consumers can expect home-price growth to slow in the months ahead.
“Prospective homebuyers may feel an all-too-familiar sense of dread upon hearing that prices—already at record highs—rose another 5.6% in 2023 according to our ICE Home Price Index,” Andy Walden, ICE’s vice president of enterprise research strategy, said in a news release.
He continued, “As always, the truth of the situation is more nuanced than one simple, backward-looking metric might suggest, and the data holds some encouraging signals for these folks.
“In recent months, we’ve seen improvement in rates, affordability, and for sale inventory, with monthly home price growth moderating on a seasonally adjusted basis. While we are still out of sync with historical norms on multiple fronts, each of those metrics have at least been moving in the right direction.”
Lower rates, home equity surge gives refi incentive a boost
Lower mortgage rates could make refinancing more attractive in 2024, especially for the 4.3 million mortgages originated last year, ICE found. An estimated 46% of those borrowers might be able to lower their existing rate by 75 basis points if 30-year mortgage rates fall to 6% by the end of 2024, according to ICE’s data.
A third of mortgage borrowers who got a home loan in 2023 might be able to save a full percentage point (or more) this year by refinancing, ICE confirmed.
“Originators would do well to identify and engage with these potential customers now,” Walden said. “Of course, what’s good news for mortgage originators simultaneously heightens prepayment risk in the capital markets. Getting a granular, daily view of prepay activity will become essential this year as investors navigate an extremely rate-sensitive and volatile market.”
Current mortgage holders gained $1.6 trillion in home equity by the end of 2023, up 11% from the close of 2022, ICE found. This equity surge pushed the aggregate total to $16 trillion, the highest annual total on record. Additionally, two-thirds of those homeowners have credit scores of 760 or higher, lowering their lending risk, ICE reported.
The average mortgage holder now has $299,000 in equity by the end of 2023, up from $273,000 at the end of 2022, according to ICE. About $193,000 of that equity is tappable through a home equity loan or line of credit, a cash-out refinance or a reverse mortgage.
If rates continue to fall, home equity lending could see a bump as more borrowers see an incentive to tap their home equity for major expenses at lower rates than they’d get through other financing types, such as personal loans or credit cards.