• The rapid increase in mortgage rates kept both buyers and sellers on the sidelines.
  • Mortgage rates are expected to be in the high fives by year-end, says Selma Hepp.
  • Five US metros including Salt Lake City and Boise are highly vulnerable to price declines. 

It is a rough time for the real-estate market as mortgage rates remain volatile. The 30-year fixed rate averaged 6.39% on Wednesday, more than double the rate from just two years ago. Yet, it’s still a sigh of relief from highs of over 7% in November 2022. 

“We ended the year pretty miserably in terms of home sales activity,” Selma Hepp, the chief economist for CoreLogic, told Insider in an interview. Home-purchase sentiment and home-sale sentiment from home buyers and home sellers was pretty dim too.” 

The rapid increase of mortgage rates in a very short period of time kept both buyers and sellers on the sidelines. While this year is already better than the last, home sales activity will remain weaker relative to the last two years, Hepp said. The uncertainty around a potential recession, combined with continued volatility in rates, will push off increased home sales activity into 2024, she said. The banking crisis that began in March has added to the hesitancy, according to an April 25 note from Hepp. 

Mortgage rates remain too high and too volatile, reads the same note. Potential buyers are on the lookout for a better entry point, specifically, when the 30-year fixed hits 5.5%, based on recent home buyer and seller surveys. Although mortgage rates are difficult to predict, Hepp says they could be in the high fives or about 5.8% by year-end.

So far, the housing market has rebounded after home sales slightly picked back up. Buyers are beginning to trickle back into the market as rates come down. But sellers aren’t listing at the same rate as demand, she noted. During the spring, inventory has historically increased. Yet this year, there’s less of an appetite to sell. Homeowners who have secured longer-term mortgages at interest rates well below the current rate are reluctant to give it up in exchange for a new property, she added. 

This has suppressed transactions in home sales. Below is a map that shows the change in home sales on a year-over-year basis across the country.

Homes sales change across the country by area.

Source: CoreLogic property records data

The imbalance is what’s driving home prices up. After seven months of continuous home-price declines, February saw a bounce back with prices up 0.8% on a month-over-month basis where they would historically be up 0.4% for the same period, Hepp noted. On a year-over-year basis, they’re up by 4.4%, according to CoreLogic’s Home Price Insights report from April 4.

This suggests home values will be stronger than previously anticipated. However there’s quite a bit of variation regionally. While values in some areas are on a recovery, mainly in the East coast, eight states and districts recorded annual home price losses, according to the same report. For example, on the West coast and mountain West, home prices have gone down from their peaks by as much as 10 to 14%. In Seattle, Washington and the San Francisco Bay Area, home prices are down by about 14% from their 2022 peak, she noted. Declines have also been seen in Idaho, Oregon, and Utah, the report adds. 

Below is a map that demonstrates the change in the Home Price Index (HPI) between February 2023 and the month in which each metro’s HPI peaked in 2022. The HPI measures year-over-year changes in single-family home values based on data from all 50 states and over 400 American cities. The average price changes are based on repeat sales or refinancings on the same properties.

Change in home prices since 2022’s peak rates per region.

SourceL CoreLogic Home Price Index

“The divergence in home price changes across the US reflects a tale of two housing markets. Declines in the West are due to the tech industry slowdown and a severe lack of affordability after decades of under supply. The consistent gains in the Southeast and South reflect strong job markets, in-migration patterns and relative affordability due to new home construction,” Hepp wrote in the report. 

The downward activity will continue to impact areas differently. Below is a list of the markets with the highest risk of price declines, according to CoreLogic data. The confidence score indicates the probable accuracy of each estimate. 

CoreLogic Market Risk Indicator (MRI)