Recent Policy Changes And Economic Factors That Are Affecting Homeowners

The past year has seen significant changes in the housing market, with new policies and economic trends impacting homeowners nationwide. From rising interest rates to tax law changes, here are some key factors affecting homeownership in 2023.

New Mortgage Rule under the Biden Administration

A recent change to the mortgage rule by the Biden administration has created a situation where homeowners with a good credit score might end up paying more​¹​​²​. This rule encourages more home ownership and offers “equitable” access to homeownership. This would particularly affect loans guaranteed by Fannie Mae or Freddie Mac, which comprise about 60% of the mortgage market​¹​.

However, the policy has drawn criticism from Republicans who argue it punishes hardworking Americans for their fiscal prudence. State treasurers and finance officials from 27 states have urged the Biden administration to backtrack from the policy, calling it a middle-class tax hike that will unfairly cost American families millions of dollars. It's estimated that the extra costs for higher-credit borrowers would be around $3,200​¹​.

Federal Reserve's Rate Hikes and Pause

The Federal Reserve had been raising rates to rein in inflation, with seven rate hikes in 2022. This led to a jump in mortgage rates from 3.4 percent in January to 7.12 percent in October 2022, significantly affecting purchase affordability. This was particularly challenging for lower-income and first-time buyers​³​.

However, in June 2023, the Federal Reserve paused the rate hikes, which some speculate could mark an end to this round of tightening. Mortgage rates, which are not directly controlled by the Federal Reserve but are influenced by its policies, could drift down over the second half of the year as the economy slows down. This could ease the affordability squeeze, especially as home prices have stabilized​³​.

Long-term Impact of Mortgage Rates on the Housing Market

There's no denying that low mortgage rates helped fuel the housing boom of 2020 and 2021. However, the housing market slowed down dramatically when mortgage rates surged higher than they had been in two decades in late 2022. Despite this, economists and housing experts suggest that home prices and sales are resilient to rising mortgage rates​in the long term ³​. This resilience is often attributed to a combination of factors, including limited housing supply and strong demand in many markets. Additionally, legislative measures like the homeowners bill of rights legislation aim to provide greater protections for buyers and homeowners, fostering stability within the market. Such initiatives could help ensure that even amidst fluctuating mortgage rates, the housing sector remains robust and accessible over time.