13 minute read
How Will Rising Interest Rates Impact the Housing Market in 2023?
By: Stephanie Weaver, from fox10phoenix.com
During the height of the COVID-19 pandemic, the Federal Reserve kept interest rates historically low, and this meant a home buyer could borrow money at an incredibly low rate.
Now, experts say the housing market looks completely different compared to the last two years of extraordinary performance, causing house hunters to grapple with suddenly high rates, rising home prices and a tight supply of properties on the market.
"It has completely changed," Lawrence Yun, chief economist at the National Association of Realtors (NAR), told FOX Television Stations. "The mortgage rates have more than doubled and it’s limiting the homebuyers’ ability to take out a mortgage." The feds recently announced another aggressive rate hike — the third consecutive increase of three-quarters of a percentage point and the sixth rate hike this year alone.
It’s a streak that has made mortgages and other consumer loans increasingly expensive and heightened the risk of a recession.
"Interest rates have increased at the fastest rate in four decades and they are at 20-year highs. As a result, the interest rate-sensitive sectors of the economy such as housing, autos, appliances, furniture, etc. have materially declined," Sam Khater, vice president and chief economist of Freddie Mac's Economic and Housing Research Division, told FOX.
The average rate on a 30-year fixed mortgage — which was just 3.14% a year ago — surpassed 7% late last month, mortgage buyer Freddie Mac reported, the first time in two decades.
According to new data released Friday by the NAR, the monthly mortgage payment on a typical existing single-family home with a 20% down payment was $1,840 –up 50% year-over-year. surged, experts say home prices are still rising or holding steady in many parts of the United States.
"A lot of people think interest rates are going up so housing prices are going to fall off a cliff. That’s actually not what’s happening," Grauman explained.
The difference this time around, Grauman notes, is a supply and demand issue.
Sellers are less motivated to sell in an economy with higher interest rates, so with so few properties on the market, experts say this is helping push home prices higher, even in a slowing market.
And, consequently, the mortgage rate, which is the lifeblood of most home purchases, has quickly reduced the pull of eligible buyers.
"It’s certainly having its impact on the housing market, there’s no question about that," Jon Grauman, a founder and agent at the Grauman Rosenfeld Group in Beverly Hills, California told FOX.
Grauman and other experts note the rise in rates has also reduced the number of home sales on the market.
According to the NAR, sales of previously occupied U.S. homes fell in September for the eighth month in a row, matching the pre-pandemic sales pace from 10 years ago.
But even though the number of sales has decreased as mortgage rates have "Even though there are less transactions happening, we haven’t really seen much of a dip in home values, and frankly, I don’t anticipate that we are going to," Grauman continued.
But as the market transitions, most experts agree that the strength of the housing market in 2023 will depend on next year’s mortgage rates.
If mortgage rates begin to decline next year, Yun believes we will see an increase in homebuyers who want to get back into the market. But, if mortgage rates continue to remain elevated, this
will lead to more sluggish market conditions and slowing sales.
Khater’s sentiment is similar noting if the economy falters in 2023 due to the higher rate environment, this will weaken the housing market even more.
"Changes in interest rates have long and variable lagged impacts on the housing market. The housing market has still not felt the full impact of the most recent increases in rates during the last couple of months, so I expect home sales and home prices to remain weak throughout 2023," Khater continued.
One thing that may not change much in 2023 is the U.S.‘s rising home prices due to the economy’s limited supply of inventory.
New data shows single-family existinghome sales prices grew in nearly every measured metro area – 181 of 185 – in the third quarter of 2022, the NAR revealed Friday. The national median single-family existing-home price climbed 8.6% from a year ago to $398,500.
"Right now, I think the market is still trying to find its footing - it’s literally shifting beneath our feet," Grauman said, adding, "What people have been waiting on is this, sort of, wave of new inventory to help balance the market, and I hate to be the bearer of bad news, it’s not coming."
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Home Insurance Outlook for 2023
By: Les Masterson, with forbes.com
Inflation and extreme weather are expected to deliver another blow to home insurance costs in 2023.
The last two years saw home insurance cost hikes. The average home insurance rate increased by 9% in 2021, which eclipsed the 7% average rate hike the previous year, according to the Insurance Information Institute. Homeowners should expect more of the same in 2023.
Here are homeowners insurance trends that These inflationary costs are leading to higher home insurance claim costs and squeezing home insurers. Inflation directly influences home insurance rates because “the bulk of policyholder premium is spent repairing and restoring property,” says Tom Larsen, associate vice president of hazard & risk management at CoreLogic.
Cost increases in building materials and labor accelerated in 2022, which will lead to higher home insurance costs in 2023, says George Hosfield, senior director and general manager for home insurance at LexisNexis Risk Solutions.
we can expect in the coming year.
The Consumer Price Index increased by 7.7% over the 12-month period that ended in October 2022. Earlier in the year, the index grew a whopping 9.1% in the 12 months that ended in June. That jump was the largest increase in 40 years.
“As we look at 2023, you’re going to continue to see upward pressure of insurance premiums largely driven by inflationary costs,” Hosfield says. freezes and wildfires, has led to higher home insurance quotes and caused multiple insurers to go out of business or drop policies in high-risk areas.
Supply Chain Concerns Remain
Supply chain issues caused disruptions during the height of the Covid-19 pandemic in 2020 as lockdowns, labor shortages and distribution bottlenecks caused empty shelves and Americans scurrying for basic items like paper towels.
Those issues for basic necessities are largely in the past, but supply chain problems remain for building materials. These supply chain issues are leading to more expensive construction costs, home insurance claims and, as a result, home insurance rates.
Increased replacement cost value for homes is the primary home insurance rate driver in 2022 and should continue into 2023, says Mark Friedlander, a spokesperson for the Information Information Institute. He adds that replacement value costs are increasing at double the U.S. inflation rate.
“The higher replacement cost is a result of supply chain disruption and spikes in construction materials and labor. This has been a growing trend throughout the pandemic,” observes Friedlander.
Extreme Weather Drives Risk
Extreme weather, including hurricanes, A recent LexisNexis Risk Solutions report found that home insurance claims cost increased by 7% in 2021, partly because of extreme weather-related claims.
The report found that weather-related insurance claims for water damage increased by 329% between 2020 and 2021, and catastrophic claims rose by 222%. Louisiana and Texas had the biggest home insurance losses, while Colorado and Nebraska saw the highest average loss costs over the past seven years.
Louisiana had two Category 4 hurricanes—Laura in 2020 and Ida in 2021— that led to more than 800,000 property claims, resulting in $22 billion in insured losses. Friedlander says those losses led to “turmoil in the state’s home insurance market.”
Hurricane Ian decimated parts of Florida in 2022 and gave another wallop to the Florida home insurance market. Friedlander says the Insurance Information Institute estimates insured losses may top $60 billion, making it the second-largest insured loss event in U.S. history, behind only Hurricane Katrina in
2005. These losses will result in higher home insurance rates in Florida and Gulf Coast states in 2023, says Friedlander.
More than 75% of Florida residents live in coastal communities. Friedlander says there are similar population trends in other coastal states along the eastern seaboard, putting them more at risk of weather-related home insurance claims.
It’s not just hurricanes causing home insurance problems. Freezes in Texas, wildfires in California and tornadoes and storms in the midwest have led to billions of dollars of home insurance claims. Larsen says 2022 weather-related losses might not affect home insurance rates in those areas
until 2023 since it takes a year for home insurance companies to implement new rates.
Multiple factors have caused problems for home insurance companies, which have sought hefty rate hikes. Insurers have to file their rate increases with state insurance departments and seek approval.
“If an insurance company can’t get the rate that they think will make them solvent, they won’t write new policies,” says Hosfield.
Multiple insurers have closed, stopped selling new policies or fled high-risk states. This trend has caused millions of policyholders to turn to their state’s home insurer of last resort.
In Louisiana, weather-related claims led 11 small regional insurers to fail. Another 12 insurers left the state and more than 50 others aren’t writing new business in hurricane-prone areas. The state-run insurer of last resort, Louisiana Citizens Property Insurance Corp., has seen its policyholders triple since January 2021, says Friedlander.
To offset those costs, Louisiana regulators recently approved a staggering 63% average home insurance rate hike for Louisiana Citizens Property Insurance’s 114,000 home policyholders. The rate increase is effective Jan. 1 2023, and won’t affect current Citizens policyholders until they renew their policies after that date. Friedlander says private home insurance companies may follow with their own substantial rate increases.
Florida’s state-run insurer of last resort, Citizens Property Insurance Corp., saw its policyholders grow to over 1 million members, after multiple home insurance companies went out of business or stopped selling policies in the Sunshine State.
Florida’s problems aren’t only weatherrelated. Roof replacement claim fraud schemes and excessive litigation against insurers caused instability in the home insurance market. Nearly 80% of all property claim lawsuits in the U.S. were filed in Florida last year. Friedlander says no other state had more than 3,600 property claim lawsuits in 2021, including California, which has nearly twice the population size of Florida.
The Insurance Information Institute predicts Hurricane Ian litigation expenses to potentially reach $20 billion, which could further strain small, regional insurers that may fail.
Florida allowed its state-run insurer of last resort, Citizens, to increase home insurance rates by an average of 6.4% in 2022, which was below what Citizens requested (11%). Friedlander warns that the lower average increase may cause Citizens Property Insurance to struggle, especially since Citizens is expected to balloon to 1.5 million policyholders in 2023.
“The company’s risk exposure continues to increase because of the turbulent private market and the lack of options for consumers,” Friedlander says.
Beyond Gulf Coast states, California’s FAIR plans (Fair Access to Insurance Requirements), which is a consolidation of insurers that provide safety net policies, has also increased its policyholders. The California Department of Insurance said FAIR Plan policies rose by 49,049 policies in 2020 to a new high of 241,466 policies in 2021.
Fewer insurers selling policies and more homeowners relying on safety net home insurance policies isn’t a good combination for policyholders.
“Fewer options for policyholders is generally acquainted with increasing rates,” says Larsen
