Ever since the Federal Reserve began its series of inflation-fighting interest rate hikes last year ‘rising mortgage rates’ has been the headline.
Higher rates had the immediate impact of dampening homebuyer affordability and demand. But this year, we’re seeing further repercussions. While analysts expected listing inventory to swell as sales declined, instead, homeowners have been pushing off plans to sell because they don’t want to lose their existing, lower mortgage rates.
So what impact is this reduced demand and low supply environment having on home values? And what can we expect from the real estate market in the coming months? Here are several key indicators that help paint a picture of the current market and where it’s likely headed.
HOME SALES ARE EXPECTED TO PICK UP BY EARLY NEXT YEAR
The weather isn’t the only thing that heats up in the spring and summer. Nationally, it tends to be the busiest time in real estate. But this year, the peak season got off to a slow start nationally, with sales declines in both March and April.1,2 Existing home sales in April were down 3.4% from the previous month—and 23.2% from a year earlier.2
What’s causing this market slowdown? Industry experts attribute it to several factors, including near-record home prices, high mortgage rates, and low inventory.
According to National Association of Realtors (NAR) Chief Economist Lawrence Yun, “Home sales are trying to recover and are highly sensitive to changes in mortgage rates. Yet, at the same time, multiple offers on starter homes are quite common, implying more supply is needed to fully satisfy demand. It's a unique housing market.”1
Some industry experts believe the market is poised to strengthen. Forecasters at the Mortgage Bankers Association (MBA) predict that home sales will continue to moderate through Q3 before rising in Q4 and throughout next year.3 Analysts at Fannie Mae expect this shift to take a bit longer, picking up in early 2024.
Meanwhile, home builder confidence is already up, as purchases of new single-family homes surged in March and April to a 13-month high.5 Builder incentives are helping to boost sales: According to the National Association of Home Builders, in May, 54% reported using them to win over budget-conscious buyers.6
What does it mean for you? A slower pace of sales has given buyers some breathing room. If you hated the frenzy of the pandemic-era real estate market, now might be a better time for you to shop for a home. Let me help you evaluate your options and make an informed purchase.
If you plan to sell your home, prepare yourself for less foot traffic and a longer sales timeline than you may have found a year ago. And heed the pricing and marketing advice of a skilled and knowledgeable real estate agent. I will support that advice with substantial market data that applies to you now, today.
PROPERTY VALUES REMAIN RELATIVELY STABLE
Some good news for buyers nationally: While home builder sales climbed in April, the median new-house price fell to $420,800, an 8.2% decrease from a year ago.5 Meanwhile, the median existing-home price dropped to $388,800, down 1.7% year-over-year. Notably, existing-home prices rose in parts of the country but fell in the South and West.2
“Roughly half of the country is experiencing price gains,” explains Yun. “Multiple-offer situations have returned in the spring buying season following the calmer winter market. Distressed and forced property sales are virtually nonexistent.”2
The average national home price remains about 40% higher than it was in early 2020, according to the S&P CoreLogic Case-Shiller index.7 A tight housing supply has helped to buoy prices amidst a slowdown in sales.
“While it varies from region to region, home prices at the national level may fall 1% or 1.5% by the end of the year, so not much,” Doug Duncan, senior vice president and chief economist at Fannie Mae, told Yahoo Finance in April.8
Record levels of home equity will help to stabilize the sector and prevent a wave of foreclosures, even where prices moderate, according to Mark Zandi, chief economist at Moody’s Analytics.9
“But for those who have owned a home for more than a year or two, their home will remain a rock-solid investment. And once affordability is restored, the next generation of households can become homeowners. Getting there is critical to the financial well-being of those households, their communities, and the broader economy,” writes Zandi in The Washington Post.9
What does it mean for you? Prices have softened in certain market segments—where motivated sellers are perhaps more willing to make deals. Work with a seasoned professional who is on your side to negotiate for you.
If you’re a homeowner, the surge in home values has slowed, but you’re likely still sitting on a nice pile of equity. I am equipped to help you evaluate the value of your home today, and assess the best way to use the equity you have built if you plan to buy another home at the same time.
In a recent survey by the home listing site, 82% of respondents who are planning to both buy and sell a home said they feel “locked in” by their low rate.11
In some areas, new home construction is helping to fill the supply gap. “Currently, one-third of housing inventory is new construction, compared to historical norms of a little more than 10%,” according to National Association of Home Builders Chief Economist Robert Dietz.12
And more new homes are in the pipeline, after a builder slowdown last year. Single-family housing starts rose 1.6% from March to April (seasonally adjusted) and new construction permits hit a seven-month high.13
What does it mean for you? Inventory remains tight, but less competition means more choice and negotiating power for buyers.
Sellers are enjoying reduced competition right now, as well. However, the longer you wait to list, the more competition you’re likely to face. If you feel locked in by your current, lower mortgage rate, consider this: If you roll your equity gains into a down payment on your next home, you could possibly lower your monthly payment.
Opportunity can be found in extremes.
MORTGAGE RATES MAY FINALLY COME DOWN
According to Freddie Mac, the average 30-year fixed-rate mortgage hit a peak of 7.08% in the fourth quarter of 2022, and since then it’s primarily floated between 6 and 7%.14 However, there are signs that rates could trend lower later this year.
“Calmer inflation means lower mortgage rates, eventually,” Yun predicted in a recent statement. “Mortgage rates slipping down to under 6% looks very likely toward the year’s end.”15
Other leading economists agree. In its May forecast, Fannie Mae speculates that 30-year fixed mortgage rates will continue to decline, averaging 6.0% in Q4 2023 and 5.4% by Q4 2024.4 Meanwhile, the MBA predicts rates will fall even faster, averaging 5.6% by Q4 2023 and 4.8% by Q4 2024.3
On May 3, the Federal Reserve raised its benchmark borrowing rate by another quarter point— its 10th consecutive increase since March 2022. However, in its corresponding statement, the Fed omitted language from its previous release about “additional policy firming,” leaving some analysts to speculate that the rate hikes may be over.16
Although mortgage rates aren’t directly tied to the federal funds rate, a decision by the Fed to pause rate increases could have a positive effect.
What does it mean for you? Mortgage rates may finally trend down, which would be great news for buyers. But, a decrease in rates could correspond with an increase in competition and prices. If you start searching now, you’ll be prepared to make an offer when the time is right. Get in position with third party financing ready to go. It increases the strength of any financed offer many times over.
If you’re planning to sell, consult a real estate professional to help you analyze your goals, and consider your best course given the timing and pricing factors that exist NOW, that will impact your net proceeds.
If you are buying a home, I will guide you through the ins and outs of our market and the issues most likely to drive home values in your particular neighborhood and impact the value of your investment.
While national real estate forecasts can provide a “big picture” outlook, real estate is local. And as a local market expert,
I AM HERE TO GUIDE YOU
The above references an opinion and is for informational purposes only. It is not intended to be financial, legal, or tax advice. Consult the appropriate professionals for advice regarding your individual needs.
Sources:
National Association of Realtors – https://www.nar.realtor/newsroom/existing-home-sales-slid-2-4-in-march
National Association of Realtors – https://www.nar.realtor/newsroom/existing-home-sales-faded-3-4-in-april
Mortgage Bankers Association –
https://www.mba.org/docs/default-source/research-and-forecasts/forecasts/2023/mortgage-finance-forecast- may-2023.pdf?sfvrsn=4bf1d1a7_1
U.S. Census Bureau – https://www.census.gov/construction/nrs/current/index.html
National Association of Home Builders –
https://www.nahb.org/news-and-economics/press-releases/2023/05/lack-of-existing-inventory–boosts- builder-confidence-to-key-marker
New York Times –
https://www.nytimes.com/2023/04/29/business/spring-housing-market.html?
Yahoo Finance –
https://finance.yahoo.com/news/mortgage-rates-increase-after-weeks-of-declines-160015631.html
The Washington Post –
https://www.washingtonpost.com/business/2023/04/22/housing-prices-put-some-out-of-the-market/
CNBC –
https://www.cnbc.com/2023/04/20/home-sales-fell-in-march-amid-volatility-in-mortgage-rates.html
Realtor.com –
https://www.realtor.com/research/2023-q1-sellers-survey-btts/
National Association of Home Builders –
https://www.nahb.org/news-and-economics/press-releases/2023/04/lack-of-existing-inventory-continues-to- support-builder-sentiment
United State Census Bureau – https://www.census.gov/construction/nrc/pdf/newresconst.pdf
National Association of Realtors –
https://www.nar.realtor/blogs/economists-outlook/instant-reaction-inflation-april-12-2023
CNBC –
https://www.cnbc.com/2023/05/03/fed-rate-decision-may-2023-.html