Home price appreciation is expected to slow down to roughly 13% by early 2023.

Rising mortgage rates are already pricing out first-time homebuyers, but it’s not enough to extinguish the U.S. real estate frenzy. While higher borrowing costs may cool the pace of price increases modestly in some markets, the severe housing shortage and intense pent-up demand for real estate -- from both traditional buyers and investors -- will continue to drive housing costs higher, according to economists.  “Even if a number of buyers get knocked out of the running or put their plans on hold, some will still be forging ahead,” said Jeff Tucker, senior economist at Zillow. “There are a lot of people determined to make that home purchase – and because there are so few homes available, it doesn’t take that many determined buyers to keep the gears in motion.” Tucker acknowledged that the quick increase in borrowing costs this year has been a humbling reminder that the housing market and rates are notoriously hard to predict, especially in a tumultuous global economy.  While Zillow’s most recent model had home-price appreciation peaking at 22% in May and then gradually slowing to 18% by February 2023, the recent spike in rates has led Tucker to cut his forecasts. The pace of price growth is more likely to slow to about 13% by early next year, he said. So far, rising rates have stoked demand as buyers rush to lock in purchases before borrowing costs move higher. Nearly 70% of offers written by Redfin agents in February faced bidding wars, according to the brokerage’s seasonally-adjusted measure of competitiveness. That’s the highest level in data dating back to April 2020, just before the pandemic housing rally began. “It’s the most competitive time in history to purchase a home because mortgage rates are rising from historic lows amid a worsening supply shortage,” said Redfin Chief Economist Daryl Fairweather. “Bidding wars intensified this year after rates started spiking, which lit a fire under buyers.”

Source: Bloomberg