Norada Real Estate Investments

Archives for December 2023

Housing Market Shows Signs of Resilience Despite Headwinds

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The US housing market has shown remarkable resilience in recent months, defying predictions of a downturn. In September, the U.S. CoreLogic S&P Case-Shiller Index increased 3.9% year-over-year, marking the third consecutive month of annual gains following two months of declines. This trend is a testament to the underlying strength of the housing market, supported by factors such as a robust labor market, solid consumer confidence, and limited inventory.

However, the housing market is not without its challenges. Mortgage rates have surged in recent months, reaching their highest levels in over two decades. This has led to a decline in affordability, making it more difficult for first-time buyers to enter the market. Additionally, the ongoing supply chain disruptions have continued to push up the cost of building materials, putting upward pressure on home prices.

Looking Ahead

Experts expect the housing market to continue to moderate in 2024. Home price growth is forecast to slow to around 3%, down from the 5% pace seen in 2023. This deceleration is due to a combination of factors, including rising mortgage rates, slowing economic growth, and a gradual increase in housing supply.

The housing market is expected to remain resilient in 2024. The strong labor market and solid consumer confidence are likely to continue to support demand. Additionally, the limited inventory of homes available for sale is expected to help to prop up prices.

Additional Insights on US Housing Market Trends

  • Regional variations: While the national home price growth is slowing down, there are significant regional variations. The West Coast, including San Francisco and Seattle, continues to see strong price gains, while markets in the Midwest, like Detroit and Chicago, are experiencing a resurgence in demand.
  • Month-over-month trends: Some West Coast markets, particularly Las Vegas, San Francisco, and Phoenix, recorded the strongest month-over-month price gains in September.
  • Price growth expectations: Price trends are expected to continue to vary by region. For instance, Detroit and New York are projected to see robust price growth, while Seattle, Minneapolis, Portland, and Denver are anticipated to experience weaker growth.

Extended Analysis of US Housing Market Trends

  • Home sales: Home sales will remain flat in the fourth quarter of 2023 compared to the same period last year, despite rising mortgage rates. This suggests that the market is stabilizing after a period of decline.
  • Price growth: Home price growth is expected to slow down in 2024, averaging 3% compared to 3.8% in 2023. However, it is still projected to remain above pre-pandemic levels.
  • Drivers of growth: The main drivers of home price growth are low inventory, particularly in the West; the migration of higher-income households; equity-rich baby boomers; and a strong U.S. job market.
  • Regional variations: There are significant regional variations in home price growth. Some of the metros that have seen the strongest growth in 2023 include Detroit, New York, Las Vegas, Phoenix, Miami, Tampa, and Charlotte. These are often markets that experienced home price declines in 2022 or lagged in appreciation during the pandemic. In contrast, Seattle, Minneapolis, Portland, and Denver have seen weaker price growth.
  • Price tiers: The high-price tier has seen a relatively stronger rebound in September, with a 2.8% annual increase. This may be due to migration trends, with higher-income households moving to areas that are relatively less expensive or have more temperate weather. The low-price tier also saw strong gains in September, with a 3.7% increase. This was led by gains in Miami, Chicago, and Boston.
  • Month-over-month trends: The month-over-month comparison of appreciation by price tier and location also reveals relative changes in demand across the country. In September, Las Vegas and Tampa led the gains in the high tier, while Miami, Chicago, and Boston led the gains in the low-price tier.

Overall, the US housing market is expected to remain stable in the near term, with continued home price growth but at a slower pace than in 2023. The main drivers of home price growth are low inventory, migration, demographics, and a strong job market. However, rising mortgage rates are likely to dampen demand and slow price growth in 2024.

Sources:

  • https://www.corelogic.com/intelligence/us-corelogic-sampp-case-shiller-index-annual-growth-moves-higher-september/

Mortgage Rate Drops to Four-Month Low to 7.17%

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Mortgage Rate Drops to Four-Month Low

The mortgage landscape in the United States is experiencing a significant shift as the contract rate on a 30-year fixed mortgage recently hit a four-month low, standing at 7.17% in the week ending December 1. This notable decline of 20 basis points marks the most substantial drop in five weeks since late 2008, demonstrating a trend that is capturing the attention of homeowners, prospective buyers, and industry experts alike.

Current Mortgage Rates and Trends

According to the Mortgage Bankers Association (MBA), the mortgage rate decline has been consistent over the past five weeks, totaling 69 basis points. Mortgage News Daily, providing more frequent updates, reported the 30-year fixed mortgage rate at 7.08% on Tuesday, underscoring the downward trend.

The dip in mortgage rates is attributed to expectations that the Federal Reserve has concluded its interest rate hikes and may even consider cutting them early next year. After reaching a peak near 8% in October, the retreat in mortgage rates is anticipated to stimulate housing inventory and sales.

Impact on Refinancing and Application Activity

Refinancing activity surged by nearly 14%, marking the most significant increase since February. This surge has contributed to an overall boost in MBA's index of applications. While purchasing activity experienced a slight decrease, it still remains near the highest level since mid-September.

The MBA survey, a staple since 1990, draws on responses from mortgage bankers, commercial banks, and thrifts, covering more than 75% of all retail residential mortgage applications in the US.

Joel Kan, MBA’s Vice President and Deputy Chief Economist, noted that the decline in mortgage rates is linked to slower inflation and market expectations regarding the potential end of the Fed's hiking cycle. This bodes well for homeowners and potential buyers, as the lower rates alleviate the financial burden associated with moving.

Refinance Applications and Purchase Index

According to MBA, refinance applications saw the strongest week in two months and increased on a year-over-year basis for the second consecutive week, a positive sign suggesting that 2023 might have marked the low point in this cycle for refinance activity. Purchase applications, on the other hand, remained 17% lower than a year ago, impacted by low inventory and ongoing affordability challenges.

Additional Insights from MBA’s Weekly Mortgage Application Survey

Several key insights emerge from MBA's Weekly Mortgage Application Survey:

  • The average size of all loans and those for home purchases each fell by more than $15,000 last week. The overall loan size of $345,900 is the smallest since the first week of 2022. The average purchase loan amount was $396,500.
  • The FHA share of total applications increased to 15.0%, and the VA share rose to 12.8%. USDA loan applications accounted for 0.5% of the week’s total.
  • Various mortgage rates witnessed changes, with the 7.17% rate for conforming 30-year fixed-rate mortgages representing a 20-basis point decline. Jumbo 30-year FRM, FHA-backed 30-year FRM, and Fifteen-year FRM rates also experienced shifts.
  • The ARM share of activity decreased to 7.4% of total applications, a 3 percentage point drop over the previous month.

As the mortgage landscape continues to evolve, these developments signal potential opportunities for homeowners considering refinancing and prospective buyers navigating the current real estate market.

Fannie Mae Improves its Housing Market Predictions for 2023

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Fannie Mae Improves its Housing Market Predictions for 2023

The 2023 housing market predictions by Fannie Mae provide a glimpse into a market navigating through challenging waters. Despite the hurdles posed by soaring mortgage rates, the housing market has demonstrated resilience. However, caution is essential as we move into 2024, with expectations of a slowdown.

Factors Influencing the Housing Market

The housing market is influenced by various factors, and the fluctuation in mortgage rates is a significant contributor. As mortgage rates surge past 7%, they are expected to impact the housing market in 2023 and beyond. Affordability constraints are becoming more pronounced, making it challenging for potential buyers to enter the market.

Fannie Mae's Economic and Strategic Research Group anticipates that the higher mortgage rate environment will dampen housing activity, complicating affordability into 2024. This situation is a result of a substantial surge in housing activity experienced in the years between mid-2020 and mid-2022, with much of that momentum now being reined in.

Challenges and Resilience in the Housing Market

The resilience of house prices, despite the challenges posed by higher mortgage rates and affordability issues, showcases the underlying strength of the housing market. This unexpected resilience might be attributed to a combination of demand-supply dynamics, economic policies, and evolving consumer preferences.

However, experts caution that this resilience may face a test as the mortgage rates continue to rise. The slowdown in the housing market anticipated in 2024 underscores the need for potential buyers to carefully assess their options and plan their investments.

The Federal Reserve's Role and Economic Outlook

The Federal Reserve plays a pivotal role in shaping the economic landscape. The recent swift rise in interest rates has drawn attention to the Federal Reserve's stance on rate hikes. They have conveyed a commitment to keeping rates “higher for longer” until annual inflation stabilizes at 2%. This strategy is aimed at managing inflation and ensuring economic stability.

However, this approach also comes with potential economic dislocations, as witnessed in the past with similar interest rate hikes. Economists, including Doug Duncan from Fannie Mae, anticipate a mild economic downturn in the first half of 2024 due to the abrupt rise in interest rates.

Impact on Consumer Behavior

The 7% mortgage rates are expected to have a profound impact on consumer behavior. As interest rates continue to rise, consumer consumption and business investments may slow down due to increased debt costs. This could lead to a decrease in home sales as potential buyers may reconsider their purchase decisions in light of higher borrowing costs.

Fannie Mae's research group points out that the recent rapid rise in interest rates can potentially lead to economic dislocations, even though the consumer has shown resilience. The rate hike has brought to the forefront the importance of careful economic management to ensure a smooth transition.

Long-Term Housing Market Forecast and Economic Stability

The long-term forecast for the housing market depends on various factors, including how the Federal Reserve manages interest rates and inflation. While there may be short-term challenges, experts believe in the potential for the economy to stabilize in the long run. The Federal Reserve's commitment to a “soft landing” indicates its determination to manage the economy and prevent sharp economic downturns.

However, achieving this requires a delicate balance and effective policy implementation to mitigate the impact of rising rates on the housing market and the broader economy.

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