Source: Herald-Tribune —
Whether viewed by home sales (demand) or housing starts (supply), the U.S. housing market downshifted significantly during 2022.
Housing demand is driven by a number of factors, but perhaps chief among them is mortgage rates, as the key input into affordability. In turn, mortgage rates are impacted primarily by longer-term Treasury yields, especially that for the 10-year Treasury note. The combination of a short-term COVID-caused collapse in economic activity, the Federal Reserve’s lowering the federal funds rate to zero, and the Fed’s reinstituting its quantitative easing program brought the 10-year Treasury yield down to an all-time low of just over 0.50% in August 2020 – dragging yields on 30-year fixed-rate mortgages (FRMs) down to their lowest levels ever at 2.65% at the start of 2021.
Although interest rates started to move modestly higher in 2021 and into 2022, mortgage rates remained at historically low levels, starting 2022 at around 3.22%. These low mortgage rates, combined with a spurt in economic growth and the ability of many workers to do their jobs remotely, pushed housing demand – and thus home sales – up sharply during this period.
