Quarter #4 Newsletter 2023

Housing Market Predictions For 2023: When Will Home Prices Be Affordable Again?

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A s temperatures begin to cool, the housing market continues to fizzle, with blisteringly high mortgage rates and scorching home prices becoming too hot to handle for many would-be home buyers.
The national average 30-year fixed mortgage rate blasted through 7% in mid-August and reached a 2023 high of 7.31% at the end of September. As of September 28, the average 30-year fixed mortgage rate stands at 7.31%, the highest level since 2000, according to Freddie Mac.
Meanwhile, year-over-year existing monthly home sales sagged in July for the second consecutive month, slipping by 2.2% to a six-month low, with all four major U.S. regions posting year-over-year sales declines, according to the National Association of Realtors (NAR).
Despite ultra-high mortgage rates and home prices, the market remains as competitive as ever, thanks to demand levels surpassing the ongoing inventory crunch and homeowners who locked in low interest rates staying put. These and other factors perpetuate the perfect affordability crisis storm that continues to sideline many aspiring homeowners.

​Housing Market Forecast for September 2023

Housing market activity remains weak overall thanks to high mortgage rates, elevated home prices and constrained housing inventory—a trifecta of headwinds perpetuating the housing affordability crisis. At the same time, high inflation and more interest rate hikes still hang in the air.
The Fed decided not to raise the federal funds rate at its September meeting, opting instead to maintain its current range between 5.25% and 5.5%. The federal funds rate is the rate financial institutions lend to each other overnight. A Fed rate hike indirectly impacts long-term home loans, such as 30-year, fixed-rate mortgages.
Fed projections suggest the terminal federal funds rate will reach 5.6% by the end of 2023, implying at least one more rate increase this year. Consequently, many experts forecast mortgage rates remaining well above 6% for the remainder of this year.

Forecast for mortgage rates and types

Mortgage interest rates could continue to increase, says Lawrence Yun, NAR’s chief economist, adding that 7 percent could be the general level for the rest of this year and most of 2024. Within two years, he says, the rate should return to 5.5 or 6 percent. Danushka Nanayakkara-Skillington, assistant VP of forecasting and analysis for NAHB, agrees, predicting rates will drop to about 6 percent by the middle of 2024.

REal Estate News

Tips for preparing
to buy a home
Buying a house is a major commitment, and starting to save up five years in advance is perfectly reasonable. Here are some strategies to get your finances in shape and save for a down payment so you can be a homeowner by 2028.
1. Think about earning power
Switching jobs is usually the fastest path to a significant salary bump, so be willing to look for other opportunities to increase your earning power. According to a 2022 study from the Pew Research Center, 60 percent of workers who switched jobs earned more money in their new roles, even accounting for inflation. If a new job is not an option, think about the best ways to ask your employer for a raise.
2. Decrease your debt
Saving up to purchase a home isn’t just about growing your bank account. It’s equally important to focus on paying down the amount of money you owe on credit cards, student loans and car payments. By lowering your debt-to-income ratio, you’ll be in a better position to qualify for a mortgage down the line.
3. Improve your credit score
The higher your score, the lower mortgage rate you’re likely to qualify for when you’re ready to buy. Most mortgage types require a minimum score of 620 to qualify, but higher is better. So pay your bills on time and do what you can to raise your credit score before you start house-hunting — it could save you a lot of money in the long run.
4. Focus on your local area
Real estate is hyper-localized, varying greatly not just by region or state but even within the same city. Broad national trends are important to bear in mind, but as you budget and save to buy a house, focus on conditions in the specific neighborhood where you’re looking. This is where a knowledgeable local real estate agent can really shine: Agents are experts in their markets, so find one you like and let their expertise work for you.

Because rates are high, Yun foresees a greater interest in adjustable-rate mortgages through next year. However, after that, he predicts 90 percent of Americans will return to the traditional 30-year fixed-rate mortgage. Greg McBride, CFA, Bankrate’s chief financial analyst, thinks the 30-year fixed will remain the dominant mortgage product. “It provides the certainty borrowers want, lenders can sell them to investors, and there is a vibrant secondary market of global investors eager to buy them,” he says.

Predictions for home prices

Yun foresees no major changes in purchase price tags on a nationwide level next year, with fluctuations of only about 5 percent one way or the other. The only exception is California, he says, where the market could see 10 percent declines: “Because it’s so expensive, California is always the most vulnerable to changes in interest rates.” This scenario is already playing out in the priciest areas in the state: For example, San Francisco median home prices are down 9.71 percent since last year, according to Redfin data. Overall, in five years, Yun expects prices to have appreciated a total of 15–25 percent.
McBride predicts home prices will average low- to mid-single-digit annual appreciation over the next five years. This rate of appreciation, he says, is consistent with the long-term average of home prices increasing by a rate that hovers a percentage point above the inflation rate.

Will the housing market crash?

While it may show bubble-like characteristics, Yun does not expect the residential real estate market to pop. He does predict that sales will be at a low point next year, with only 5.3 million units sold, but he foresees a gradual increase afterward, up to an annual 6 million units by 2027. Despite today’s higher mortgage rates, home prices are still strong, he adds. Even if they decline 5 percent (or 10 percent in California) next year, that’s not anywhere close to crashing, which he says is characterized by a one-third drop.

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A crash happens with oversupply. It will not happen because there isn’t enough inventory.
— LAWRENCE YUN, CHIEF ECONOMIST, NATIONAL ASSOCIATION OF REALTORS

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“A crash happens with oversupply,” Yun says. “A 30 percent decrease will not happen because there isn’t enough inventory.” He believes the housing supply will balance out within five years.
Many other experts agree that there is no danger of an imminent housing market crash. Not only is inventory is too scarce, as Yun notes, but lending standards today are much stricter than they were back in the days of the Great Recession. Lenders are largely not issuing loans that borrowers can’t really afford anymore, which helps keep foreclosure rates low.

Will we shift into a buyer’s market?

Yun expects the overall seller’s market to continue as long as housing inventory remains low. By five years out, though, he foresees more of a balanced market, where neither the buyer or seller holds a significant advantage. Instead, the negotiating power between parties will be more equal and depend on the individual case.

Affordability Struggles Sideline Hopeful Home Buyers

If now doesn’t feel like the right time to buy a home, you’re not alone.
In fact, you’re among the 82% of consumers who reported putting home buying plans on hold, even as they say that they feel their job and income are stable or better than a year ago, according to the Fannie Mae Home Purchase Sentiment Index (HPSI).
Thanks to escalating mortgage rates and still-high home prices, homeseekers on $3,000 monthly budgets who could have purchased a $500,000 home a year ago, can only afford a $429,000 home today, according to a recent Redfin report.
First-time buyers hoping to land a home at a lower price point generally have it the worst.
Starter home costs continue on an upward trajectory that has put homeownership further out of reach for those already constricted by limited down payment savings and incomes that can’t keep pace with costlier monthly payments, according to Realtor.com data.
For example, monthly mortgage payments in Wichita, Kansas have exploded by 271% since 2019. It’s a similar story in many areas of the country that historically have been more affordable.
Weakening affordability conditions for first-time buyers is further underscored in NAR’s latest First-Time Homebuyer Affordability Index. The preliminary second-quarter reading came in at 61.4, compared to 67.4 in the first quarter. A reading of 100 indicates that a family earning a median income earns exactly enough to qualify for a mortgage and afford a typical home.
In other words, the typical first-time home buyer is nowhere near earning the level of income required to afford a home.

Are Home Prices Beginning to Drop?

Despite signs that home prices are beginning to weaken in some regions, the housing affordability crisis is likely to perpetuate thanks to a meager housing supply, persistently high mortgage rates and sales prices that are flirting with the June 2022 record-high median existing-home sales price of $413,800.
The median existing-home sales price slid to $406,700 from $410,200 between June and July, but increased 1.9% from a year ago, according to NAR.