Norada Real Estate Investments

Is it a Good Time to Buy a House or Should I Wait Until 2023-2024

by

Is it a Good Time to Buy a House or Should I Wait?

Is it a Good Time to Buy a House

Check out the latest housing trends for the previous month if you're unsure whether it is a good time to buy a house or if should you wait until the end of 2023. It’s becoming harder to buy a house as prices are up year over year, and mortgage rates are soaring. At the same time, consumer prices on everything are also on the rise making it even more difficult to save money to buy a house next year.

In an effort to tamp down inflation, the Federal Reserve is raising interest rates. The Federal Reserve raised the target range for the federal funds rate by 75 bps to 3.75%-4% during its November 2022 meeting. It marks a sixth consecutive rate hike and the fourth straight three-quarter point increase, pushing borrowing costs to a new high since 2008. The decision came in line with market forecasts.

Policymakers also said that ongoing increases in the target range will be appropriate and that they will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments when deciding on the size of further increases.

The message could signal a smaller rate hike in December but during the press conference, Chair Powell also noted the ultimate level of interest rates will be higher than previously expected. The Fed aims to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2%, which remains elevated around 40-year highs.

The cumulative effect of these sharp rate increases has cooled the housing market and caused the economy to slow, but has done little to lower inflation. Although Fed doesn't control mortgage rates it has a ripple effect on the mortgage industry. The recent rate hike will correspond with a rise in the prime rate and immediately send financing costs higher for many forms of consumer borrowing. On the flip side, higher interest rates also mean savers will earn more money on their deposits.

However, since December data indicates that inflation is moderating, the Fed has signalled that future rate hikes will be more gradual and may even end once rates reach just above 5%. The Case-Shiller Index reveals that home prices are falling month-over-month, but are still elevated compared to a year ago. Possibly as a result of these alterations, a greater number of prospective homebuyers believe the affordability crunch will ease. However, if their optimism leads to an increase in demand, prices may increase once more.

<<< Will the Housing Market Crash? >>>

Is it a Good Time to Buy a House or Should I Wait?

Will the 2023 year-end be a good time to purchase your first house? According to the Fannie Mae Home Purchase Sentiment Index, which has recovered slightly from its all-time low in October, prospective homebuyers are becoming a little more optimistic that mortgage rates will decline, and a larger proportion of them believe now is a good time to purchase a home.

More than 100 questions were posed to approximately 1,000 homeowners and renters regarding their perspectives on home buying and the economy. At the lowest point of the Home Purchase Sentiment, only 16% of respondents believed it was a good time to purchase a home. In December 2022, however, 21% of respondents indicated that it was a good time to buy real estate. In December, the proportion of respondents who said it was a poor time to buy decreased from 79% to 76%.

“In December, the HPSI inched upward slightly, as consumers reported increased expectations that mortgage rates and home prices may decrease over the next year – perhaps reflecting recently observed declines in mortgage rates and average home prices,” said Doug Duncan, Fannie Mae Senior Vice President, and Chief Economist.

Fannie Mae's Home Purchase Sentiment Index (HPSI) increased in December by 3.7 points to 61.0. The HPSI is down 13.2 points compared to the same time last year. Three of the index's six components improved month over month, including those associated with homebuying conditions, mortgage rate outlook, and job security.

Is it a Good Time to Buy a House?

The percentage of respondents who say it is a good time to buy a home increased from 16% to 21%, while the percentage who say it is a bad time to buy decreased from 79% to 76%. As a result, the net share of those who say it is a good time to buy increased by 8 percentage points month over month.

Is it a Good Time to Sell a House?

The percentage of respondents who say it is a good time to sell a home decreased from 54% to 51%, while the percentage who say it's a bad time to sell increased from 39% to 42%. As a result, the net share of those who say it is a good time to sell decreased by 6 percentage points month over month.

Home Price & Mortgage Rate Expectations

The percentage of respondents who say home prices will go up in the next 12 months remained unchanged at 30%, while the percentage who say home prices will go down increased from 34% to 37%. The share who think home prices will stay the same decreased from 30% to 29%. As a result, the net share of those who say home prices will go up decreased by 3 percentage points month over month.

The percentage of respondents who say mortgage rates will go down in the next 12 months increased from 10% to 14%, while the percentage who expect mortgage rates to go up decreased from 62% to 51%. The share who think mortgage rates will stay the same remained increased from 24% to 31%. As a result, the net share of those who say mortgage rates will go down over the next 12 months increased 15 percentage points month over month. Read the full research report for additional information.

Is It a Good Time to Buy a House or Wait Until 2023?
Source: Fannie Mae

The HPSI is constructed from answers to six of 100 national housing survey questions that solicit consumers’ evaluations of housing market conditions and address topics that are related to their home purchase decisions.

As of January 26, 2023, the average rate for the benchmark 30-year fixed mortgage is 6.43 percent, up 7 basis points from a week ago (source: Bankrate). A month ago, the average rate on a 30-year fixed mortgage was higher, at 6.61 percent. At the current average rate, you'll pay a combined $627.47 per month in principal and interest for every $100k you borrow. That's an increase of $4.58 over what you would have paid last week.

The average 15-year fixed mortgage rate is 5.65 percent, up 2 basis points over the last week. Monthly payments on a 15-year fixed mortgage at that rate will cost around $825 per $100,000 borrowed. The larger monthly payment may be harder to fit into your budget than a 30-year mortgage payment, but it has huge advantages: You'll save several thousand dollars in interest and create equity much faster.

Let's compare the figures between now and twelve months ago when the buyers financed their houses with a mortgage. On a $300,000 loan, a 30-year, fixed-rate mortgage at December 2021's rate of 3.11% would have meant a monthly payment of about $1,282 (Principal & interest).

  • Loan amount = $300,000
  • Total interest paid = $161,923
  • Total cost of loan = $461,923

Today’s rate of 6.43% (30-year) brings the monthly payment to $1,882 (Principal & interest). That’s an extra $600 a month or $7,200 more a year and $216,049 more over the lifetime of the loan.

  • Loan amount = $300,000
  • Total interest paid = $377,972
  • Total cost of loan = $677,972

The Fannie Mae (FNMA/OTCQB) Economic and Strategic Research (ESR) Group revised downward its forecast for total home sales growth through 2023. They now project 2022 total year existing sales by 13.3 percent in 2023. The group expects purchase volumes to fall about 1.5 percent in 2023 to just under $1.7 trillion, a downward revision of $17 billion from last month’s forecast, driven by downward revisions to their forecast for home sales.

The rise in rates is having the Fed’s desired effect on housing, as house price growth began to slow in June. They expect the slowdown in housing to continue through 2023 as affordability constraints mount for potential homebuyers, considering, too, that refinance activity has been significantly curtailed by the rise in mortgage rates.

The group continues to anticipate a strong deceleration in home price growth going forward due to the lagged effects of higher mortgage rates and the slowing economy weighing on purchase demand. If the economy suffers a downturn, mortgage interest rates will very probably fall to about 4% or even lower. If it does, this could be a good time to put off buying a home and save some money, especially for first-time buyers.

The Mortgage Bankers Association was somewhat more optimistic about mortgage rates, projecting that the average rate will increase to 4% by the end of 2022. It is now evident that neither Fannie Mae's nor the Mortgage Bankers Association's predictions were even somewhat accurate. Although the Federal Reserve does not control fixed mortgage rates, its actions have pushed them significantly higher.

The Federal Reserve is likely to continue raising interest rates, which could result in additional mortgage rate increases. On the other hand, if the Fed's actions result in a recession, mortgage interest rates could fall. Therefore, it is nearly impossible to predict the future of mortgage rates in 2023.

As a borrower, it makes little sense to attempt rate timing in this market. Regardless of current interest rates, our best recommendation is to purchase a home when you are financially ready and can afford it. Remember that you are not forever bound to your mortgage rate. If interest rates drop significantly, homeowners can refinance to save money at a later date.

Rising rates make homes more expensive for buyers, and, for prospective borrowers, steeper monthly mortgage payments. It will thereby reduce the demand for home purchases. Mortgage credit availability decreased in December according to the Mortgage Credit Availability Index (MCAI), a report from the Mortgage Bankers Association (MBA) that analyzes data from ICE Mortgage Technology.

The MCAI fell by 0.1 percent to 103.3 in December. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit. The index was benchmarked to 100 in March 2012. The Conventional MCAI decreased by 0.1 percent, while the Government MCAI decreased by 0.1 percent. Of the component indices of the Conventional MCAI, the Jumbo MCAI decreased by 0.2 percent, and the Conforming MCAI was unchanged.

Mortgage credit availability
Source: Mortgage Bankers Association

The competition for housing results in fewer options, higher prices, and faster sales. In a seller's housing market, there are more interested buyers than available homes and that makes it difficult time to buy a house, especially for first-time buyers. According to the NAR, the national median price for existing homes sold in October was $366,900, which is slightly lower than November's median price but still up 2.3 percent compared to December 2021. This is the longest streak of year-over-year growth ever recorded, spanning 130 months.

“Home prices nationwide are still positive, though mildly,” Yun added. “Markets in roughly half of the country are likely to offer potential buyers discounted prices compared to last year.”

Is it a Good Time to Buy a House for First-Time Buyers?

According to a recent Fannie Mae survey, many consumers were hesitant to buy a home in December 2022. About 51% of survey respondents expect mortgage rates to increase, and there are rising concerns about job stability and escalating housing prices. Some homebuyers will find the current market conditions easier, while others will find them more difficult to buy a house. The current upward trend in home prices is likely to continue throughout the year, which could price out some prospective buyers.

However, it is anticipated that prices will continue to rise at a slower rate in 2023. The percentage of respondents who say home prices will go up in 2023 (in the next 12 months) remained unchanged at 30% in December. The current lack of entry-level supply and the rapid increase in mortgage rates appear to be negatively impacting potential first-time homebuyers in particular, as evidenced by the larger proportion of younger respondents (aged 18 to 34 years old) who believe it is a bad time to buy a house. The advantage of the historically low mortgage rate environment of 2020 and 2021 appears to have diminished for first-time homebuyers, and affordability is projected to become an even greater constraint for them in the future.

In December 2022, first-time buyers were responsible for 31% of sales,  up from 28% in November and 30% in December 2021. According to NAR, the annual share of first-time buyers was 34% in 2021. Individual investors or second-home buyers, who make up many cash sales, purchased 16% of homes in December, up from 14% in November but down from 17% in December 2021.

In 2022, rising mortgage rates were piled onto record-breaking home prices, locking even more potential buyers out of the red-hot housing market. Historically, rising interest rates cause more prospective buyers to delay purchases, and the recent increase in financing terms has already resulted in a decline in mortgage applications.

The prices are not going to crash in 2023. The various forecasts from experts show that 2023 will remain a moderate housing market, and home values are estimated to either remain flat or increase by single-digit percentage points. While affordability concerns continue to grow, low mortgage rates, increased savings, and a strengthening job market all contribute to making homeownership more accessible to a wide number of prospective buyers.

Realtor.com’s November 2022 housing data shows that the housing market continued to cool, with inventory, time on the market, and listing price growth falling below 10% for the first time in a year. This gradually cooling market is advantageous for homebuyers because they may have more options and more time to make a purchase decision.

The slight increase in the year-over-year decline in pending home inventory compared to the previous month may indicate that the market is stabilizing after pending listing declines worsened for 11 consecutive months. In the coming months, the housing market will continue to be influenced by the direction of inflation, mortgage rates, and overall economic growth.

The national median list price declined to $400,000 in December, down from a record high of $449,000 in June (-11.1%). This represents a yearly growth rate of 8.4%, which is lower than last month’s growth rate of 11.0%. This is the first time that listing price growth has fallen below double digits since December 2021.

There were 54.7% more homes for sale in December compared to the same time in 2021. This means that there were 244,000 more homes available to buy this past month compared to one year ago. While the number of homes for sale is increasing, it is still 38.2% lower than it was before the pandemic from 2017 to 2019. This means that there are still fewer homes available to buy on a typical day than there were a few years ago.

Housing Markets that saw the largest year-over-year increase in listing prices in December:

  • Milwaukee, where the median listing price grew by +46.2%
  • Memphis, where the median listing price grew by +34.0%
  • Miami, where the median listing price grew by +20.4%

Housing Markets that saw the greatest increase in their share of price reductions compared to last year:

  • Phoenix (+17.3 percentage points)
  • Austin (+15.5 percentage points)
  • Tampa (+15.3 percentage points)

Conclusion: The Best Time To Buy A Home Depends On You

Higher interest rates pose a challenge to existing homeowners looking to buy a new home at the same time as selling their current home. Existing homeowners may benefit from lower interest rates than those offered right now because they already have mortgages. Their monthly expenses could rise dramatically as a result of the purchase of a new property.

In other words, if you don't have a specific date in mind for when you want to buy a new property, you may be better off waiting till it does. Every potential buyer's best time to buy a property is different, and the greatest time to buy a house is not the same for everyone. It’s essential to consider your financial situation and understand how buying will impact your bottom line each month.

For many first-time homebuyers, it doesn't matter if loan rates are too high, if there aren't enough homes available, or if you don't have enough money in the bank. When the time is right to purchase a home, the time is right. First-time buyers can accomplish the American Dream of homeownership without a 20% down payment. The government offers several mortgage schemes with minimal or no down payment, as well as down payment assistance programs.

Sources:

  • https://www.fanniemae.com/research-and-insights/surveys-indices/national-housing-survey
  • https://www.realtor.com/research/december-2022-data/
  • https://www.bankrate.com/mortgages/todays-rates/
  • https://www.nar.realtor/research-and-statistics/housing-statistics/existing-home-sales
  • https://www.bankrate.com/mortgages/rate-trends/
  • https://www.mba.org/news-and-research/research-and-economics/single-family-research/mortgage-credit-availability-index-x241340

Housing Market Predictions | Real Estate Market Forecast 2023

by

Housing Market Predictions & Forecasts

Will a seller's market be prevalent in real estate in the future due to increasing demand and limited supply? Housing demand is influenced by interest rates, unemployment, home price inflation, income growth, the availability of easy credit, etc. The economy is predicted to grow in the next years, pre-pandemic working conditions will return, and a range of other factors will most likely contribute to the success of the housing market.

Home prices are still rising year after year, though not as dramatically as they were earlier this year. The level of mortgage rates in 2023 will most likely influence how much home values fall. The real estate markets are significantly impacted by interest rates because as interest rates fall, so do mortgage payments, increasing demand for real estate and driving up prices.

The housing market saw an incredible year last year, with record-low interest rates, the strongest yearly growth in single-family values and rentals, a generational low in foreclosure rates, and the highest number of home sales in 15 years. As numerous buyers battled for the winning bid, house sellers witnessed a market in which their properties sold rapidly and frequently for prices over the listing price.

2022 was also predicted to be a prosperous year for the housing market but rising inflation and mortgage rates changed its outlook completely. Compared to the previous year, the housing market has significantly cooled, with home sales declining and prices rising at a moderate rate. In this blog post, we will discuss the latest housing market predictions for 2023.

Also Read: US Housing Market Trends in December 2022

There are still many concerns regarding the housing market. Critically, despite the fact that shortage of supply has been one of the primary drivers of home price growth, rising interest rates are deterring both potential sellers and new construction. As a result, there is no hope for an improvement in the housing supply and a sustainable housing market that would result from an increase in inventory.

The large and sudden increase in mortgage rates that occurred this year rendered an already expensive housing market far less affordable. Home prices experienced a meteoric rise in the early years of the pandemic for a number of reasons, including the fact that demand was at an all-time high, supply was at an all-time low, and mortgage rates reached a number of all-time lows.

The current housing market trends indicate buyers remain interested, keeping the market somewhat competitive, especially for attractive, well-priced homes. However, some factors may influence the market's pace or whether it favors buyers or sellers. Higher mortgage rates and recession fears have cooled housing markets from early spring highs. The market is shifting away from sellers to more balanced conditions.

A little pressure on home price growth will continue through the end of the year, and housing prices will continue to rise due to a supply-demand mismatch. Many experts predicted that the pandemic would result in a housing crash comparable to the Great Depression. That, however, will not happen. Housing prices are unlikely to fall drastically, but they are expected to rise very slowly as compared to last year's pace.

Housing Market Predictions 2023

There is little consensus among economists, mortgage firms, banks, and real estate firms regarding whether the historically tight U.S. housing market will reverse course in 2023. The accounting firm KPMG LLP forecasts that the U.S. housing market would decline by as much as 20% between 2022 and 2023. Goldman Sachs and Wells Fargo estimate the market will decline by 7.5% and 5.5%, respectively. Real estate companies are not optimistic.

The real estate investment firm Amherst predicted a 5% fall in the market, while Redfin predicted a 4% decline. Even federal mortgage supporters Freddie Mac and Fannie Mae anticipate a 0% to 2% decline in the market. On the other side, the Mortgage Bankers Association anticipates a 0.7% increase in the housing market, while CoreLogic predicts a 4.1% increase. Realtor.com forecasts a 5.4% increase, the National Association of Realtors forecasts a 1.2% increase, and Home.LLC forecasts a 4% increase.

Lawrence Yun, chief economist and senior vice president of research at the National Association of Realtors, predicts that 4.78 million existing homes will be sold, prices will remain constant, and Atlanta will be the top real estate market to monitor through 2023 and beyond. Half of the country may witness minor price increases, while the other half may see minor price decreases.

Housing sales will decline by 6.8% compared to 2022 (5.13 million) and the median home price will reach $385,800 – an increase of just 0.3% from this year ($384,500). In 2023, the NAR's top 10 housing markets will include Atlanta, Raleigh, Dallas, Fayetteville, Ark., and Greenville, S.C., in addition to five new metropolitan regions.

As housing demand continues to decelerate and both buyers and sellers attempt to regain their footing, it is important to remember that the surge in housing demand in 2021 was fueled by unusual circumstances, such as COVID-19-induced demand for more space and vacation homes, as well as record-low mortgage rates.

The positive outlook is that most real estate firms do not predict a financial or foreclosure crisis on the scale of 2008, but they do expect housing fundamentals to return to the mean.  Some of that moderation will be brought about by growing salaries, while some will be brought about by declining home prices. The housing market won't be overvalued after this correction is over.

CoreLogic’s most recent Loan Performance Index shows that, despite 2022’s surge in mortgage rates, almost all borrowers were able to meet their monthly payments during the year. For the first 10 months of 2022, the number of homeowners with a mortgage who were at least 30 days late on their payments hovered between 3.4% and 2.7%, with the latest data reporting a 2.8% overall delinquency rate in October. On an annual basis, mortgage delinquencies dropped for the 19th consecutive month in October.

Foreclosure rates remained near record lows throughout most of 2022, bottoming out at 0.2% in February and remaining at 0.3% through October. The fact that 99% of borrowers have locked in a mortgage rate that is lower than current rates helps prevent most homeowners from making late payments or defaulting on them altogether.

The firm that has a bullish forecast for 2023 includes Zillow. The latest housing forecast produced by Zillow economists has U.S. home values falling just 1.1% between November 2022 and November 2023. Meanwhile, the relatively bearish camp includes firms like Moody's Analytics. Its forecast has national home prices falling 5.1% between the fourth quarter of 2022 and the fourth quarter of 2023. Among the 897 markets Zillow measured, it expects 658 markets to see falling home prices between November 2022 and November 2023.

That includes markets like San Jose (-7.2% projection); Grand Forks, N.D. (-6.7%); Odessa, Texas (-6.4%); San Francisco (-6.1%); and Santa Rosa, Calif. (-5.3%). Meanwhile, Zillow expects 239 markets to see positive or flat home price growth between November 2022 and November 2023. That includes markets like Atlantic City, N.J. (+4.2% projection); Homosassa Springs, Fla. (+4.2%), and Yuma, Ariz. (+3.7%).

According to the latest report published by Fortune, the ongoing home price correction—which saw U.S. home prices decrease 2.4% between June and October—has been moderate. However, economists and experts disagree on whether this is a modest setback for home price increases or the start of a sharper correction.

According to the forecast by Moody's Analytics, the national home prices will fall 5.1% between the fourth quarter of 2022 and the fourth quarter of 2023. Peak-to-trough, Moody's expects U.S. home prices to fall 10%. Among the 322 regional housing markets analyzed by Moody's, 178 markets are expected to see at least a 5% decline in home prices between the fourth quarter of 2022 and the fourth quarter of 2023.

That includes markets like Morristown, Tenn. (-10.3% projection), Pocatello, Idaho (-9.9%), Muskegon, Mich. (-9.7%); Boise (-9.5%), and Santa Cruz, Calif. (-8.8%). Peak-to-trough, Moody's expects U.S. home prices to fall 10%. Keep in mind when a group like Zillow or Moody's Analytics says “U.S. home prices,” they're talking about an aggregated view of the country. In regional housing markets—heck, in each neighborhood—the results could vary significantly.

Low inventories will prevent home prices from declining. Strong job growth, low inventories, and tight supply will cause unequal price movements. Lower price tiers are more susceptible to interest rate hikes, while higher price tiers are more resistant to price decreases. The mix of homes that sell may be smaller on average as the market reacts to increasing mortgage rates and decreased affordability.

Housing Price Trends & Forecast Until November 2023

CoreLogic HPI™ is designed to provide an early indication of home price trends. The CoreLogic Home Price Insights report features an interactive view of its Home Price Index product with analysis through November 2022 with forecasts through November 2023. United States home prices nationwide, including distressed sales, increased year over year by 8.6% in November 2022 compared with November 2021.

On a month-over-month basis, home prices declined by 0.2% in November 2022 compared with October 2022. The CoreLogic HPI Forecast indicates that home prices will decrease on a month-over-month basis by 0.1% from November to December 2022 and on a year-over-year basis by 2.8% from November 2022 to November 2023.

home price forecast
Source: CoreLogic

The report also shows that in November, year-over-year home price growth stopped its 21-month stretch of double-digit momentum with an 8.6% increase, the lowest rate of appreciation in precisely two years. In spite of the fact that 16 states defied the national trend and experienced double-digit yearly price rises, appreciation is slowing in many of the nation's most desirable housing areas. The Southeastern states still topped the nation in terms of price rise, but they also experienced some of the most dramatic cooling.

Comparatively, somewhat more costly Western regions have also experienced significant reductions in recent months after the spring peak. Nationwide, the recent price deceleration pushed November home values 2.5% below the spring 2022 peak. In 2023, home values will likely move even further from that high point, as CoreLogic expects price growth to begin recording negative year-over-year readings in the second quarter.

No states posted an annual decline in home prices. The states with the highest increases year over year were Florida (18%), South Carolina (13.9%), and Georgia (13.6%). These large cities continued to experience price increases in November, with Miami again on top at 21.3% year followed by Houston at 10.6%, Phoenix at 8.1%, and Las Vegas also at 7.7% year over year.

Current Home Price Trends
Source: CoreLogic

Top Markets at Risk of Home Price Decline in 2023

The CoreLogic Market Risk Indicator (MRI), a monthly update of the overall health of housing markets across the country, predicts that Bellingham, WA is at very high risk (70%-plus probability) of a decline in home prices over the next 12 months. Crestview-Fort Walton Beach-Destin, FL; Salem, OR; Merced, CA and Urban Honolulu, HI are also at very high risk for price declines.

CoreLogic Market Risk Indicators is a multi-phase regression model that provides a probability score (from 1 to 100) on the likelihood of two scenarios per metro: a >10% price reduction and a ≤ 10% price reduction. The higher the score, the higher the risk of a price reduction. CoreLogic is a leading global property information, analytics, and data-enabled solutions provider.

Top Markets at Risk of Home Price Decline in 2023
Source: CoreLogic

Housing Market Forecast & Sentiment 2023 (Freddie Mac)

According to Freddie Mac, there are currently 18 percent more persons aged 25 to 34 than there were in 2006. This represents an increase of 6.6 million prospective first-time homeowners, from 39.5 million in 2006 to 46.1 million today. In addition to the increase in first-time homebuyers, the number of high-income renters who can afford to buy and are of prime first-time homebuyer age has also been growing.

In 2006, lending criteria were significantly loosened, and little examination was done to determine whether or not a borrower could repay their loan. These days, the requirements are more stringent, which lowers the risk for both the lenders and the borrowers. Consistent with a more challenging housing market for buyers, the share of buyers that faced at least one mortgage denial before getting approved grew from 22% in 2020 to 34% in 2021.

The government and jumbo segments had the most significant tightening in the previous month. These two housing markets couldn't be more different from one another, and the current situation is in no way comparable to that of the past. The Mortgage Credit Availability Index (MCAI) is an index that is released regularly throughout the year by the Mortgage Bankers Association (MBA). This index is used to measure how simple it is to get a mortgage.

The higher the index is, the more options there are for obtaining mortgage finance. In 2004, the index was hovering around the 400 mark. As the housing market heated up, mortgage loans became more available, and then in 2006, the index surpassed 850. The mortgage credit availability index (MCAI) fell as a result of the fall in the real estate market since it became nearly hard to get mortgage financing.

Since then, thankfully, the conditions for lending have been relaxed a little bit, although the index is still relatively low. The index had a reading of 103.3 in August 2022, which is around one-seventh of what it had been in 2006. It fell by 0.1 percent to 103.3 in December. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit.

Mortgage credit availability was mostly unchanged in December as mortgage rates remained significantly higher than the prior two years and both refinance and purchase activity slowed dramatically The Conventional MCAI decreased 0.1 percent, while the Government MCAI decreased by 0.1 percent.

Of the component indices of the Conventional MCAI, the Jumbo MCAI decreased by 0.2 percent, and the Conforming MCAI was unchanged. The segment of the market which showed the sharpest decline in credit availability was FHA and VA lending –which saw a 23 percent decline over 12 months.

Mortgage Credit Availability Index Trends
Source: Mortgage Bankers Association

Over the past decade, chronic underbuilding and the influx of millions of millennials into the homebuying market have resulted in a major mismatch in housing supply and demand. Even though mortgage rates are skyrocketing, the housing market is not going to crash any time soon. The result will be a much slower rate of appreciation than in the past two years. We are predicting the housing market for the next 5 years and to recognize patterns that may influence real estate values and rentals beyond a year.

Freddie Mac's own regression research indicates that a 1 percent rise in mortgage rates reduces home price increases by around four percentage points (for example, moving from 11 percent home price growth a year to 7 percent ). In contrast, analysts at J.P. Morgan expect a greater impact of around six percentage points lower home price increase.

Since home values are so high, the housing market may be more susceptible to rate increases than in the past; therefore, the greater estimate appears realistic. While it seems apparent that rising interest rates will reduce housing demand by reducing affordability, the actual past is a significantly less reliable indicator of what will occur because of a huge balancing impact – interest rates often rise when the economy is expanding.

The government-sponsored enterprise forecasts that for every one percentage point increase in mortgage rates, house sales would decrease by around five percent, and price growth will slow by four to six percentage points. If mortgage rates stabilize at current levels, and all other factors remain constant, their analysis predicts a much slower, but still positive house price rise with a wide regional range depending on migration trends.

As work-from-home becomes increasingly popular, it is anticipated that the housing market will continue to be undersupplied and that migration to lower-cost areas will continue to rise. This is significant since most booming cities have a major housing shortage due to a previous inflow of population.

Finally, favorable demographics suggest that the robust demand for first-time homebuyers will persist. This is due to the fact that there are still a substantial number of younger renters with sufficient income to sustain homeownership, and they should continue to be a formidable force for the foreseeable future. As the economy faces various headwinds in 2023, these variables should continue to exert a substantial influence on the housing market.

Freddie Mac's Economic & Housing Research Group in its latest forecast has predicted mortgage rates dropping from an average of 6.8% in the fourth quarter of 2022 to 6.2% in the fourth quarter of 2023. The housing market rapidly decelerated last year as markets absorbed the impact of higher mortgage rates. Home sales have fallen to a forecasted 5.4 million units at a seasonally adjusted annual rate in the third quarter of 2022 from 7 million earlier this year.

Housing Market Predictions
Source: Freddie Mac

Home purchase mortgage applications point to a continued contraction in home sales activity. The government-sponsored enterprise forecasts that home sales activity will bottom at around 5 million units at the end of 2023. Falling from 7 million to 5 million would be a decline of about 30% and put the contraction in home sales in line with other historical periods when interest rates increased.

As housing market activity continues to contract, Freddie Mac expects that it will lead to a continued increase in the months’ supply of homes available for sale from historically low levels last year. The loosening of the once incredibly tight for-sale inventory removes the intense upward pressure on home prices of the past two years. While fewer sales are increasing the months’ supply, that is partially offset by fewer new listings as high mortgage rates disincentivize existing homeowners from moving up or downsizing.

They expect house prices to decline modestly, but the downside risks are elevated. As the labor market cools off, housing demand will remain weak in 2023, potentially resulting in declines in prices next year. However, home price forecast uncertainty is wide due to interest rate volatility and the potential of a recession on the horizon.

Given the house price and home sales forecast, they estimate home purchase mortgage originations to be $1.9 trillion in 2022, slowing to $1.6 trillion in 2023. With mortgage rates expected to remain elevated, they forecast refinance activity to slow with refinance originations declining from $2.8 trillion in 2021 to $747 billion in 2022 and $310 billion in 2023. Overall, their forecast is that total originations will decline from the high of $4.8 trillion in 2021 to $2.6 trillion in 2022 and $1.9 trillion in 2023.

The quarterly housing outlook pulse poll conducted by Freddie Mac assesses public attitudes on housing-related problems. In the fourth quarter of 2022, market confidence fell to its lowest point since tracking began in March 2020. The likelihood of buying or refinancing a home remained flat quarter-over-quarter, while payment concerns spiked among both homeowners and renters.

  • 34% are confident the housing market will remain strong over the next year. This is down 12 percentage points from last quarter.

  • 57% of renters and 25% of homeowners spend more than 30% of their monthly income on housing.

  • This is down 3 percentage points and up 1 percentage point, respectively, from last quarter.

  • 21% are likely to buy a home in the next six months, a 2-percentage point increase from last quarter.

  • 14% of homeowners are likely to sell in the next six months, a 1-percentage point decrease from last quarter.

  • 17% of homeowners are likely to refinance in the next six months, a 1-percentage point increase from last quarter.

  • 57% of consumers are concerned about making housing payments, with concern increasing among both renters and owners since last quarter.

  • 70% of renters (an 8-percentage point increase from last quarter) and 44% of homeowners (a 7-percentage point increase from last quarter) are concerned about making housing payments.

Housing Market Outlook
Source: Freddie Mac

Housing Market Crash Predictions For Next Few Years

The housing market is far better than it was a decade ago. Last year, the housing industry experienced a boom, with the most significant annual increase in single-family house values and rentals, historically low foreclosure rates, and the highest number of home sales in 15 years, totaling 6.9 million for the entire year. Over the previous two years, national home prices increased by 33%.

The market was driven by record-low borrowing rates in 2020 and 2021, as well as a supply constraint due to underbuilding. The enormous demand from first-time buyers is almost as important as the limited new supply. The current housing market is also being driven by exceptionally favorable age demographic trends.

The overarching concern is whether or not the housing market will crash, and if so, when. The simple answer is that it will not crash anytime soon and we certainly don't see a housing market crash coming in 2023. Rising rates are cooling the market as some expected but the prices are still rising at a slower rate. The current trends and the forecast for the next 12 to 24 months clearly show that most likely the housing market is expected to see a positive home price appreciation.

In recent years, the price of homes has climbed dramatically. Many prospective buyers, especially those with limited financial resources, are eager to hear whether and when home prices will become more accessible. Here is when housing market prices are going to crash. While this may appear to be an oversimplification, this is how markets operate.

When demand is satisfied, prices fall. In many housing markets, there is an extreme demand for properties at the moment, and there simply aren't enough homes to sell to prospective buyers. Home construction has been increasing in recent years, but they are so far behind catching up. Thus, to see significant declines in home prices, we would need to see significant declines in buyer demand.

Demand declines primarily as a result of rising interest rates or a slowing economy in general. Ultimately, for rising interest rates to destroy home values, we'd need substantially less demand and far more housing supply than we presently have. Even if price growth moderates this year, it is extremely improbable that home prices will crash. Thus, there will be no crash in home prices; rather, there will be a pullback, which is normal for any asset class. The home price growth in the United States is forecasted to just “moderate” in 2023.

Affordability will be a concern for many, as home prices will continue to rise, if at a slower pace than the previous year. With 10 years having now passed since the Great Recession, the U.S. has been in the longest period of continued economic expansion on record. The housing market has been along for much of the ride and continues to benefit greatly from the overall health of the economy.

However, hot economies eventually cool and with that, hot housing markets move more toward balance. Housing market forecasts are essentially informed guesses based on existing patterns. While the real estate pace of last year appears to be reverting to seasonality as we enter 2023, demand is not waning.

Increasing interest rates will almost certainly have a greater impact on the national housing market in 2023 than any other factor. While sellers remain in an advantageous position, price stability and the continuation of competitive interest rates may provide some much-needed relief to buyers this year. Housing supply is and will likely remain a challenge for some time as labor and material shortages, as well as general supply chain issues, delay new construction.

The latest housing market trends show that prices are rising in most parts of the country and most price segments because of the lack of supply. Economic activities are ramping up in all sectors, mortgage rates are rising, and jobs are also recovering. The housing market remains largely a moderate seller's market due to demand still outpacing supply. The inventory of available houses continues to be a constraint on both buyers and sellers.

Forecasting home price appreciation is a challenging task. While inventory has increased slightly, it remains significantly below pre-pandemic levels and is simply unable to meet current demand. Tight supply following years of underbuilding, combined with increased demand due to remote work, and US demographics — will continue to be a factor in 2023. It will continue to be a moderate or balanced real estate market in 2023 & 2024.

References

  • https://www.realtor.com/research/
  • https://www.realtor.com/research/blog/
  • https://www.bankrate.com/mortgages/mortgage-rates/
  • https://www.blackknightinc.com/
  • https://www.freddiemac.com/research/forecast
  • https://www.yahoo.com/video/moody-home-prices-crash-20-142931780.html
  • https://www.realtor.com/research/2022-national-housing-forecast-midyear-update/
  • https://www.nar.realtor/research-and-statistics/housing-statistics/
  • https://www.corelogic.com/intelligence/u-s-home-price-insights/
  • https://www.zillow.com/research/daily-market-pulse-26666/
  • https://www.fhfa.gov/DataTools/Downloads/Pages/House-Price-Index.aspx
  • https://www.realtor.com/research/2021-national-housing-forecast/
  • https://www.investopedia.com/personal-finance/how-millennials-are-changing-housing-market
  • https://www.freddiemac.com/research/consumer-research/20221220-housing-sentiment-fourth-quarter-2022

Housing Market: Should You Buy a Turnkey Property or Fixer-Upper?

by

The current housing market means you’ll likely pay top dollar for a home that’s considered turnkey — immediately ready for you to move in. Plus, the competition is steep. Perhaps those two reasons are why 52% of American homebuyers are looking for a starter home or a fixer-upper rather than a forever home, according to TD Bank‘s First-Time Homebuyer Pulse, which polled buyers planning to purchase in 2022. If you’re struggling with whether to keep combing the housing market for a move-in-ready home that fits your budget or to take your chances with a fixer-upper, here’s the expert insight you need.

Pros of Buying a Fixer-Upper

Buying a fixer-upper can provide you with advantages that a turnkey home doesn’t offer. Consider the following.

Cheaper Taxes

“Fixer-uppers can be a great way to get a deal on a property and save money on taxes,” said Jeremy Luebke, founder of WeLoveLand. “In many cases, fixer-uppers are sold for less than the market value because the seller is motivated to move the property quickly. This can be a great opportunity for bargain hunters. Additionally, fixer-uppers often come with significant tax breaks. The government offers tax breaks for people who rehabilitate or redevelop properties, so if you’re planning to do major work on your fixer-upper, you may be eligible for some significant tax deductions.”

Flip Potential

“The big advantage to taking the risk on a fixer-upper is the equity you build while improving the value of the property,” said Doug Greene, owner of Signature Properties. “This is the flip potential that exists, while in a turnkey home you are essentially buying the property at full price (i.e., market value).”

Potential for Creativity

“An advantage of purchasing a fixer-upper is the opportunity to put money into the features of your house that are most important to you,” said John Riedl of Easy Cash Offer Florida. “Do you want a modern kitchen? What about a luxurious soaking tub? If you are purchasing a property that is move-in ready, you can find yourself subject to the taste and interests of the past owner.”

Riedl also pointed out that fixer-uppers give you a lot of control over the renovation process by selecting paint colors, floor materials, contractors, and anything else you desire.

Cons of Buying a Fixer-Upper

Time, money and effort are all required when it comes to getting a fixer-upper where you want it to be. Here’s more on the potential disadvantages of going this route.

Renovation Costs

“The cost of labor and materials is near its highest price ever, and if you are hiring contractors to perform work on your home, unless you have a crew on standby, it could be months before the work is done,” said Tony Grech real estate investor and lending expert with Luxury Mortgage. “Just like there is a shortage of home inventory that has driven prices up, there is a shortage of qualified tradespeople as well as a shortage in raw materials due to supply chain issues that stretch back to the beginning of COVID. So you save $20,000 or $30,000 on the price of the home, but it costs you $60,000 to perform the work that you want.”

Effort

Beyond the costs in labor and materials, renovating a home comes with some other headaches and risks,” said Brian Davis, real estate investor and founder at Spark Rental. “You have to navigate the treacherous waters of permits, which involves not just filing fees and dealing with the permit office, but also hassling with inspectors.”

Ryan Fitzgerald, owner of UpHomes also said that renovating a fixer-upper requires a lot of effort. “Renovations are time-consuming and stressful so make sure you’re up for the challenge if you decide to get a fixer-upper,” he cautioned. “If you don’t want to deal with the construction, managing contractors, and living in a home that isn’t finished, a fixer-upper may not be the best choice for you.”

Live Richer Podcast: First-Time Homebuying During Inflation: Is It Worth It?

Pros of Buying a Turnkey Home

While a home that’s ready to move in will likely cost much more than a fixer-upper, there are some definite advantages that are worth considering.

No Renovation Costs

“When you purchase a turnkey home, the price you see is the price you pay,” said Luebke. “There are no additional costs for things like landscape or certain home upgrades. This can be a big advantage when budgeting for your new home. You know exactly how much money you need to bring to the table, and there are no unpleasant surprises down the road.”

Minimal Effort Required

If you’re looking to move in and start enjoying your new home as soon as possible, turnkey home is a perfect choice. “Turnkey homes require much lower effort because you can move right in and start enjoying the home after you unpack,” said Ryan Fitzgerald, owner of UpHomes.

Cons of Buying a Turnkey Home

However, buying a turnkey home also comes with a few drawbacks. It’s up to you to decide if they are worth it.

More Expensive Taxes Upfront

While you can get a lower property tax rate by buying a cheaper fixer-upper, that’s likely not the case with a turnkey home.

“If you opt for a turnkey home, the municipality will have likely already caught up to the new assessed value by the time you move in,” said Greene. “It’s usually the sale of the property that triggers a property reassessment in the system.”

Flip Potential Is Nonexistent

“Buying turnkey is certainly the way to go if you have no desire to make repairs to a home and want it move-in ready,” said Jeff Shipwash, CEO of Shipwash Properties LLC. “Unfortunately, in today’s market, turnkey properties are at a premium. This means you will more than likely have strong competition and will be paying top dollar for it. This results in buying with little to no equity to spare.”

And without any equity to spare, there is no flip potential.

Limited Opportunities for Creativity or Customization

“The home might not be exactly what you want,” said Luebke. “Since the home has already been built, you may be limited in terms of customizations or changes that you can make. The home might come equipped with most, if not all, of the features and amenities that you desire, but there is always the chance that something will not be quite to your liking. This can be frustrating if you have specific ideas about how you want your new home to look and function.”

>>This article originally appeared on GOBankingRates.com.<<

Will The Housing Market Crash: Real Estate Crash Again?

by

Real Estate Housing Market Crash

Will the Housing Market Crash

As more signs show that the housing market is already slowing down in 2022, many people are wondering: Will the housing market crash or collapse in the near future? More and more housing analysts are anticipating a more balanced housing market in the future, with annual appreciation slowing to single digits. Fewer homes are being listed, which may force a greater number of listings to lower their prices to match lower housing demand.

Year-over-year home price growth decelerated in the third quarter, as the sharp rise in mortgage rates – and declining housing affordability. With mortgage rates continuing their rise (at 7.08 percent as of this writing), resulting in rapidly diminishing home purchase demand, home prices are predicted to continue to decline in the near term.

Some housing markets are at risk of crashing or declining in home prices over the next 12 months. The housing market is cooling as the economy is shrinking. The stock market is falling as inflation soars. Google trends include “Is the U.S. in a recession?” If the country isn't in a recession, it may be close. Will another downturn crash the housing market? As of August 2022, amid record inflation and higher interest rates, the forecasters still think that home price growth in 2022 will see a strong deceleration but the price would still not decline year-over-year.

Housing caused the worst financial crisis in recent memory. When shoddy mortgages crumbled, the nation was left with foreclosures, numerous new houses remained empty, and millions of Americans were suddenly underwater. Throughout the preceding century, the housing market met considerable barriers, but none, with the exception of the Great Depression of 1929, led to the decrease in home values that happened during the Great Recession of 2007.

It is also important to note that not all economic downturns dampen the real estate market. Despite the economic downturn, the home market and demand remained robust during the 2001 recession. The housing market has been subjected to a number of severe hurdles during the course of the previous century; but, with the exception of 1929's Great Depression, none of these challenges have resulted in a decrease in house values comparable to that of 2007's Great Recession.

Today, most Americans don't want another 18 months of hardship. The housing market's recent pandemic boom, with skyrocketing prices, bidding wars, and an influx of investors, has parallels to that previous time. However, this time, the housing market won't crash or trigger a recession and may even assist the country's recovery. The majority of real estate professionals do not believe that the housing market is in a bubble or poses a threat to the faltering economy.

This is despite the fact that home prices have risen by more than 31 percent nationally in only two years of the pandemic. The median list price figures on Realtor.com® are from June 2020 to June 2022. Investor activity was consistent in the summer of 2022, resulting in an increased share of purchases by these buyers despite a fall in overall sales. Every month, about 100,000 properties are purchased by investors of all sizes around the country.

This time around, there are far more purchasers than available properties, the exact opposite of what occurred in the 2000s. The majority of bad mortgages have been eliminated. Lenders have significantly stricter requirements on borrowers. However, this does not mean the economy is immune to the recession. Two consecutive quarters of negative U.S. gross domestic product, or GDP, often indicate an economic collapse.

According to the U.S. Commerce Department, GDP decreased by 0.9% in the second quarter of the year, following a decline of 1.6% in the first quarter. The unemployment rate remained extremely low in June, at only 3.6%. Despite the fact that more corporations are implementing hiring freezes and laying off staff, there are still a large number of organizations competing for personnel. If the country were in a recession, many more people would undoubtedly be unemployed, and companies would not be complaining about a lack of qualified applicants.

U.S. Federal Reserve Chair Jerome Powell has said the nation isn’t in a recession, a sentiment echoed by President Joe Biden.

“I do not think the U.S. is currently in a recession, and the reason is there are too many areas of the economy that are performing too well,” Powell said at a press conference on Wednesday.

According to Realtor.com, the housing shortage is simply too severe, with many more individuals trying to purchase and rent houses than there are available. In addition, the mortgage sector took action against loans that ballooned in size or were intended for borrowers to fail. And only purchasers with a consistent, verifiable income may qualify for mortgages.

The housing market was very different during the Great Recession In 2005 and 2006, 20% of mortgages went to persons who didn't meet regular lending conditions. They were called Subprime borrowers. Subprime lending has a higher risk, given the lower credit rating of borrowers. 75% of subprime loans were adjustable-rate mortgages with low initial rates and a scheduled reset after two to three years. Government promotion of homeownership prompted banks to slash rates and credit criteria, sparking a house-buying frenzy that drove the median home price up 55% from 2000 to 2007.

Nowadays, things are very different. Even if a recession occurs in 2022 or 2023, experts do not anticipate the widespread unemployment that characterized the Great Recession. They also anticipate that the recession will be quite brief. This means that there will be fewer homeowners unable to pay their mortgages. Those who are struggling may decide to sell their houses, maybe even at a profit, rather than allow them to be lost to foreclosures and short sales.

Without a lot of cheap homes flooding the housing market, home prices should remain strong to prevent any crash coming. 

Many tapped-out homeowners are taking a step back as mortgage interest rates progressively rise into the 5%-plus range or close to 6%. Some no longer qualify for mortgages big enough to finance the purchase of the type of home they desire. Others cannot afford the increased rates and prices or do not wish to purchase at the housing market's peak. Some individuals are taking a wait-and-see strategy out of fear of a recession.

As a result, fewer properties are selling, bidding wars are subsiding, and bids beyond the asking price are decreasing. Numerous house sellers have been compelled to reduce their asking prices. In the event of a recession, mortgage rates are anticipated to decline. This should reintroduce buyers (who did not lose jobs) to the housing market. When home sales will increase, the economy as a whole will benefit. This is how the housing market can assist the nation in climbing out of a recession.

The National Bureau of Economic Research’s Business Cycle Dating Committee, and the eight economists who sit on it, are the official arbiter of whether the economy has entered into a recession. It has yet to make a determination.

“We’ll wait and see,” says Hale. Whatever happens, “I don’t expect another housing crash.” “In today’s housing market, we have a decade’s worth of underbuilding, which means there’s a lot more demand than supply,” says Hale. That imbalance should keep home prices stable. “It’s unlikely we will see big home price declines as we saw in the late 2000s.”

Millennial Housing Demand Will Keep The Market From Crashing

Millennials and Gen Z want more housing. As of July 2019, 166 million Americans aged Millennial or younger are potential homebuyers. According to the National Association of Realtors, first-time buyers were responsible for 30% of sales in June, up from 27% in May and down from 31% in June 2021. Most first-time buyers are younger than 40, indicating a broad buyer pool and robust demand, especially given low home inventories.

We won't see a decline since home inventory hasn't grown in 10 years. In a few years, Gen Z will be 30 and more financially competent to become homes than Millenials were at their age. This suggests house demand will remain strong, if not rise, while inventory lags. The extremely low supply is driving up home prices, which is another reason why housing experts believe the market will remain strong for years to come.

The fundamental reason house prices have risen so fast in the past two years of the pandemic is a supply-demand imbalance, And, after not building nearly enough houses over the previous decade, it will take at least many years for homebuilders to add enough new supply to balance the market.

The months of supply in a balanced market would be roughly six months—the time it would take to exhaust all homes for sale at the current sales rate. However, the current market has only 3.0 months of supply (up from 2.5 months in June 2021), indicating a significant imbalance in favor of sellers. The slowdown in housing construction continued into June as housing starts fell to their lowest level since September 2021. Housing starts fell by 32k units in June to 1,559,000 (annualized).

With building permits falling for the third month in a row, evidence point to continued weakness in house development, particularly in the single-family category. As mortgage rates remain at levels last seen at the onset of the Global Financial Crisis, it is anticipated that demand will continue to decline throughout the year but there are no signs of a housing market crashing again this year or in 2023.

Pandemic-induced housing boom will slow down somewhat. The slowing economy, combined with inflation and interest rates eroding consumer purchasing power, presents large challenges for the housing market through the rest of the year. That said, a strong labor market remains supportive of demand, and improving supply conditions should help keep the construction market from rapidly deteriorating.

Today's buyers are facing challenges in the form of high prices and mortgage rates. House prices are continuing to grow and new home constrictions lag behind, leaving them in constrained housing conditions. Some buyers move from large cities to cheaper metros. Buying a house today during inflation, even if it means postponing other expenditures, might save money if prices and equity grow. Buyers may save by buying a property and locking in a rate before rates and prices rise further.

The economy affects housing supply and demand. If the economy is strong, more people will purchase and sell real estate. If the economy isn't functioning well, consumers have less income due to inflation. Their wages and weekly income aren't rising as fast. Supply and demand affect home values. Even if inflation is high, housing prices will decline due to oversupply.

For example, between 2006 and 2007, failure to make mortgage payments resulted in the foreclosure of millions of homeowners, resulting in a steep decline in house values, an increase in financial troubles, and, eventually, the bursting of the housing bubble. The ability to predict when the housing market would implode depends on a number of things. After all, is said and done, you must consider the following questions. Are homes still being sold in your neighborhood? Do prices fluctuate frequently?  Are there numerous home foreclosures?

Buyers and investors in the housing market must be able to see through real estate agent hype and bluff. Answering these questions can help you understand how your local housing market is performing, but there is no specific formula for determining whether a housing crisis is near. If you are unsure of what you are witnessing in your particular market, an experienced local realtor will help put your queries in context.

When Will the Housing Market Crash?

The current state of the real estate housing market, which is currently adjusting to record-high inflation and higher interest rates, is giving real estate companies and experts a run for their money, as the continued pressure of these forces is causing difficulties for those who make future predictions. What are the housing market crash predictions for the next five years? Prior to answering this question, it is crucial to comprehend what causes real estate markets to fall in the first place.

First, it is essential to recognize that housing markets do not suddenly crash. Multiple variables will exert pressure on a market over time, eventually leading to its collapse. When home values climb too rapidly, a housing bubble arises. When there's demand and the capacity to buy, it may increase. When there aren't enough houses for sale to match demand, competition drives up prices.

When a housing bubble expands and pressure builds, the housing market may crash. Interest rate hikes slow the economy. Demand and jobs might drop. Oversupply promotes a buyer's market and cheaper pricing. The real estate market might then fall or stall down. How can you know how awful and how fast it will go better? It depends on how sustainable development was before the slowdown and how serious the causes are.

Mark Zandi, the chief economist of Moody's Analytics, said he is concerned about a harsh landing in the housing market. Still, he believes the market and economy will not collapse as they did last time. He believes that for the 2023 housing market, home prices will level off, decreasing in certain sections of the country while rising somewhat in others. In comparison to the rise in 2022, this prediction for 2023 appears fairly reasonable.

Fannie Mae's housing market forecast released in October 2022 is also less bullish due to softening consumer spending.

Will the housing market crash?
Source: Fannie Mae Home Price Index

The ESR group lowered their 2022 forecast or total home sales slightly to 5.64 million units, an 18.1 percent decline from 2021, down from our previous forecast of a 17.2 percent drop. The change was disproportionately due to a lower expectation for existing home sales given incoming data and higher mortgage rates (exceeding 6.6 percent according to the most recent Freddie Mac survey).

Their total home sales outlook for 2023 was revised downward from 4.98 million to 4.47 million units. Additionally, the ESR Group has revised downward its forecast for home prices as measured by the Fannie Mae Home Price Index. The ESR Group now anticipates 2022-year-end home prices to rise 9.0 percent, down from a previous forecast of 16.0 percent.

For 2023, the group projects home price declines of 1.5 percent, down from its prior forecast of home price growth of 4.4 percent.  Given changes to its outlook for both home sales and mortgage rates, it has lowered our forecast for 2022 single-family mortgage originations to $2.33 trillion (previously $2.44 trillion), and its 2023 single-family mortgage originations forecast to $1.74 trillion (previously $2.17 trillion).

Aside from reduced affordability, Fannie Mae forecasts that as mortgage rates rise, the “lock-in” effect, in which existing mortgage borrowers have rates well below current market rates, is limiting the number of move-up buyers. While the total inventory of homes for sale continues to rise, this is primarily due to a slowing pace of sales.

According to Realtor.com, new listings in September were 9.8 percent lower than a year ago. The combination of decreased affordability and a significant financial disincentive for existing homeowners to take out a new mortgage at current market rates will almost certainly continue to weigh on sales.

The new home sales decline is also expected to continue but there are growing numbers of statements from homebuilders pointing to an increased willingness to more heavily discount homes to drive sales volumes more. While multifamily housing construction continues to move at a strong pace, signs of slowing rents and growing vacancy rates are beginning to develop. The multifamily starts are predicted to slow meaningfully in 2023 following their torrid pace this year.

Will The Mortgage Market Decline?

Given changes to its outlook for both home sales and mortgage rates, the Economic & Strategic Research (ESR) Group has lowered its forecast for 2022 single-family mortgage originations to $2.33 trillion (previously $2.44 trillion), and our 2023 single-family mortgage originations forecast to $1.74 trillion (previously $2.17 trillion).

The Economic & Strategic Research (ESR) Group now projects total mortgage originations to be $2.47 trillion in 2022, a downward revision of $61 billion from July’s forecast. In 2023, they expect total originations to fall further to $2.29 trillion. However, this represents an upgrade of $66 billion from last month’s forecast.

The forecast for 2022 purchase mortgage origination volumes has been downgraded by $78 billion from last month’s forecast to $1.6 trillion, driven by recent incoming mortgage application data as well as our downwardly revised outlooks for home sales and home price growth. In 2023, it expects purchase volumes to shrink by 18 percent year over year to $1.3 trillion, a downgrade of $338 billion from last month’s forecast, again driven by weaker home price expectations as well as significant downgrades to its forecast for home sales.

In the refinance market, it now expects 2022 volumes to total $701 billion, $30 billion lower than last month’s forecast, driven by declining to refinance applications given the higher interest rate environment. The group expects 2023 refinance volumes will be $392 billion, a downgrade of $98 billion from last month’s forecast, again reflecting our expectation for continued higher rates.

Will the Housing Market Crash – Quarterly Outlook

The FMHPI is an indicator of typical house price inflation in the United States. It shows that home prices increased by 11.3 percent in 2020 and 15.9 percent in 2021, as a result of robust housing demand and record-low mortgage rates. According to Freddie Mac's quarterly housing forecast released in October 2022, the housing market rapidly decelerated as markets absorbed the impact of higher mortgage rates.

Home sales have fallen to a forecasted 5.4 million units at a seasonally adjusted annual rate in the third quarter of 2022 from 7 million earlier this year. Their housing forecast is that home sales activity will bottom at around 5 million units at the end of next year. Falling from 7 million to 5 million would be a decline of about 30% and put the contraction in home sales in line with other historical periods when interest rates increased.

As housing market activity continues to fall, Freddie Mac estimates the months' supply of homes available for sale to rise from historically low levels last year. The easing of the formerly highly restricted for-sale inventory relieves the severe upward pressure on property prices that has existed for the past two years. While fewer sales increase the months' supply, this is partially countered by fewer new listings as high mortgage rates discourage current homeowners from upgrading or downsizing.

House prices have risen by approximately 40% since 2020 (compared to a cumulative inflation rate of 15%), but the rise in mortgage rates has caused a correction in house prices. The government-sponsored enterprise expects house prices to fall slightly, but the downside risks are high. As the labor market cools, housing demand will remain weak in 2023, potentially leading to price declines the following year. However, home price forecast uncertainty is high due to interest rate volatility and the possibility of a recession.

Real Estate Housing Market Crash
Source: Freddie Mac

Despite the fact that home prices continue to set records, a panel of housing specialists and economists polled by Zillow believes the market is not in a bubble. The most recent Zillow Home Price Expectations study interviewed more than 100 experts from academia, government, and the private sector about the status of the housing market and future growth, inflation estimates, and recession risks. Sixty percent of those polled do not believe the US housing market is now in a bubble, compared to 32 percent who say it is and 8 percent who are unsure.

 

will the housing market crash
Source: Zillow

Strong market fundamentals, including demographics, restricted inventory, and altering housing tastes, led respondents to reject the housing bubble argument. Sound loan underwriting and the majority of fixed-rate, fully amortized mortgages led to low credit risks. Another substantial minority opposed the word “bubble,” which suggests an imminent crash. Unaffordable prices in the absence of record-low mortgage rates are the main concern of housing bubble believers.

A hot market doesn't always indicate a bubble. Although a recession is imminent, today's housing market is very different from the mid-2000s. This market is supported by robust fundamentals and sound mortgages, aspects that won't alter soon. Therefore, most of the housing crash predictions show us that prices aren’t likely to drop in the near future.

Despite a more than 100-basis point increase in mortgage rates since the previous survey just three months ago and the potential for higher rates in coming months, the panel’s expectations for 2022 home price appreciation still rose to 9.3% from 9.0% last quarter. This would be a significant step down from the 19.6% appreciation observed over the 2021 calendar year, but still high above long-term historical averages.

Looking forward, the most optimistic quartile of respondents predicted prices would rise 46.1% between now and the end of 2026, while the most conservative quartile predicted a cumulative rise of only 9.3% in that time. On average, respondents are forecasting a 26.4% cumulative rise by the end of 2026.

The next 5 years will also see huge technological changes in the real estate sector, which could impact the demand and supply. The housing market is coming off a year in which home prices in the United States increased by an unsustainable 18.8%. Will the market continue to grow at this rate or will it be a little less frenetic this year? An already challenging market with limited inventory and record price growth has become even more unfavorable for homebuyers as a result of an unprecedented interest rate increase.

The national Zillow Home Value Index, which rose 10.4% in the 12 months ending in November, is expected to fall 1.1% over the next 12 months. Zillow's forecast for existing home sales in 2022 was revised down slightly as leading indicators point to a continued slowing in the housing market in the near term. A weaker home sales forecast translates to more inventory, and therefore a faster correction in home values, leading to a downward revision.

For the 12 months from December 2022 to December 2023, Zillow projects only a 0.7% decline in the Zillow Home Value Index. High mortgage rates and major affordability challenges are predicted to drive weaker sales in 2023 when they are projected to total 4.4 million, a 13% decrease from the projected full-year 2022 total.

Rising and fluctuating mortgage rates continue to pose difficulties for both prospective home buyers and sellers. Affordability barriers are as high as they've ever been, limiting demand and putting downward pressure on prices. The number of new listings continues to be significantly fewer than a year ago, providing some support for prices but limiting the possibility of sales activity. As the end of the year approaches, the housing market faces considerable downside risks.

One of the most widely held housing market predictions for 2023 is that inventory will remain scarce but price appreciation will be slower than it was in the last two years. While spring and summer will likely see an increase in listings, there is unlikely to be enough to meet demand. The housing market has been particularly robust during the pandemic, with high demand for homes in almost every region of the nation.

The cost of borrowing money through mortgages has been steadily increasing this year. Most experts predicted that mortgage rates would climb this year, but they did so more quickly than expected, averaging more than 4% for 30-year fixed-rate mortgages in mid-February. Around mid-April, it surged to 5.28 percent, the highest level since April 2010, and the uptick continues. As of now, the current average rate for the benchmark 30-year fixed mortgage has topped 6%.

Monthly affordability is suffering as interest rates rise, but we'll also lose more of the investment-type buyers looking for once-in-a-lifetime leverage. As a result, rising interest rates may also imply a more balanced market. With rates that low in 2021, all kinds of buyers rushed in, and with little housing supply to match, the price rise has been ferocious. This also emphasizes affordability. The basics of housing needs would still continue to drive primary purchases forward. It's a good thing that the housing market will be less heated in 2023.

Only 5% of Metros Are Expected to See a Price Decline by August 2023

The S&P CoreLogic Case-Shiller Home Price Indices are a group of indices that measure real estate or housing prices. They track changes in residential home prices throughout the United States. In August, the CoreLogic S&P Case-Shiller Index posted a 13% increase, down from a 15.6% gain in July, marking the fifth straight month of decelerating annual home price appreciation.

The rapid decline in home prices put this August’s annual gain below those recorded in 2021 and 2004-2005. In addition, the non-seasonally adjusted month-to-month index posted the second month of declines, down by 1.1% in August from a 2.6% peak increase in March and a 0.5% decline in July, suggesting further and potentially quicker deceleration in home price growth.

At this pace, and according to CoreLogic’s Home Price Index forecast, annual growth is expected to slow to 9% by December and down to less than 1% by the end of the first quarter of 2023. Some housing markets are seeing a more significant slowing of home price appreciation, particularly those on the West Coast and in the Mountain West, where high mortgage rates are severely impacting housing affordability.

Nevertheless, differences still exist by geography, with affordable areas in the South and Southeast continuing to thrive as out-migration from more expensive markets persists. However, slowing home price growth should continue nationwide, with the forecast for most metros in the low single digits by early next year. Only about 5% of metros are currently forecast to post price decreases by August 2023.

After six straight months of Tampa, Florida leading the nation for appreciation, Miami posted the strongest annual home price growth among the 20 tracked markets, surging by 28.6% in August, down from July’s non-seasonally adjusted rate of 31.8%. Tampa now ranks second, recording a 28% year-over-year gain in August, down from 31.7% in July.

Charlotte, North Carolina posted the third-highest increase, at 21.3% in August.  Phoenix’s rapidly slowing housing market pulled the metro down to the sixth position with a 17.1% increase — down from February’s 32.9% gain when it last posted the index’s strongest price growth.

Home Price Appreciation Trends
Source: CoreLogic

Where Will the Housing Market Crash?

Many concerns remain about the housing market. Critically, while one of the biggest drivers of home price growth has been the lack of supply, higher rates are holding back both potential sellers and new construction. As such, there is no relief in sight for an improvement in the housing supply and the sustainable housing market that would come with increased inventory.

These top markets are at risk of home price decline/crash in 2023. The CoreLogic Market Risk Indicator (MRI), a monthly update of the overall health of housing markets across the country, predicts that Bellingham, WA is at very high risk (70%-plus probability) of a decline in home prices over the next 12 months. Crestview-Fort Walton Beach-Destin, FL; Salem, OR; Merced, CA and Urban Honolulu, HI are also at very high risk for price declines.

CoreLogic Market Risk Indicators is a multi-phase regression model that provides a probability score (from 1 to 100) on the likelihood of two scenarios per metro: a >10% price reduction and a ≤ 10% price reduction. The higher the score, the higher the risk of a price reduction. CoreLogic is a leading global property information, analytics, and data-enabled solutions provider.

Top Markets at Risk of Home Price Decline in 2023
Source: CoreLogic

Sources:

  • https://www.realtor.com/news/trends/recession-will-housing-market-survive/
  • https://www.noradarealestate.com/blog/housing-market-predictions/
  • https://www.corelogic.com/intelligence/u-s-home-price-insights/
  • https://www.forbes.com/advisor/mortgages/real-estate/will-housing-market-crash/
  • https://www.zillow.com/research/zhpe-q2-2022-not-a-bubble-31093/
  • https://www.freddiemac.com/research/forecast
  • http://www.freddiemac.com/research/forecast/20210715_quarterly_economic_forecast.page
  • https://www.fhfa.gov/DataTools/Downloads/Pages/House-Price-Index.aspx
  • https://www.zillow.com/research/zillow-home-value-and-sales-forecast-september-2022-31431/
  • https://www.fanniemae.com/research-and-insights/forecast/weak-growth-continues-housing-slows

Housing Market Cooling Off in 2023: Top Markets Slowing Down

by

The Housing Market is Cooling Off

A housing bubble usually begins with a boost in housing demand while inventory is limited, which can cause housing prices to spike. That bubble can burst when demand falls or stagnates even while supply increases because of the earlier jump in demand. This can spur a sharp decrease in home prices when the new supply of homes lacks buyers willing or able to pay the higher costs.

There is no clarity regarding the housing market forecast for 2023. Most analysts predict that home prices will grow in the majority of the housing markets next year albeit slightly. If inflation persists, the Fed could tighten more than anticipated by the financial markets. This would result in higher mortgage rates, which will impact the U.S. housing market. If inflation falls or a recession develops in the near future, the Fed may soften financial conditions.

While it remains unclear if the U.S. housing market will crash, consumer confidence in the market increased 0.6 points in November to 57.3, its first increase in nine months, though it remains just above the all-time low set last month and significantly lower than its level at this time last year, according to Fannie Mae's Home Purchase Sentiment Index (HPSI).

16% of respondents indicated that now is a good time to buy a home – unchanged from the previous month – while the percentage who believe now is a good time to sell a home increased from 51% to 54%. Year over year, the full index is down 17.4 points. Both consumer homebuying and house-selling sentiments are much lower than they were last year, which is predictable given that mortgage rates have more than quadrupled and home prices remain high.

According to a recent report from Redfin, a technology-powered real estate brokerage, expensive housing markets in the U.S. are cooling down amid rising mortgage rates, inflation, a slowing stock market, and general economic uncertainty. The company analyzed the 100 most populous metropolitan areas based on how quickly they cooled from February to August based on year-over-year changes in prices, price drops, supply, pending sales, sale-to-list ratio, and share of homes that went off the market in two weeks.

Some of the fastest-cooling cooling areas include both those that have long been expensive and places that became significantly less affordable during the pandemic because they attracted scores of relocating homebuyers. According to Redfin’s report, Seattle’s housing market is cooling off faster than any other in the country. The good news is that the slowdown is dampening competition and giving those who can still afford to buy more negotiating power

Homebuyer demand and competition are down in Washington state city. About 34% fewer homes sold within two weeks in August than a year earlier. Home prices are also falling, with the typical property selling for 2% less in August than a month earlier. These stats indicate that Seattle buyers have more to choose from, and homes are taking longer to sell. Tacoma is also among the top 10 markets cooling fastest.

Las Vegas, Nevada scored second on the list, with home values falling 3% in August from the previous month and around 26% fewer homes selling within two weeks than a year before. Third place goes to San Jose, CA, where the housing market has likely cooled since the Fed's rate hikes and rising mortgage rates have made it more difficult to buy a property there.

Top 10 Cities Where Housing Markets Are Cooling the Fastest

  1. Seattle, WA
  2. Las Vegas, NV
  3. San Jose, CA
  4. San Diego, CA
  5. Sacramento, CA and Denver, CO (tie)
  6. —
  7. Phoenix, AZ
  8. Oakland, CA
  9. North Port, FL
  10. Tacoma, WA

Top 10 Housing Markets Cooling Off The Most

Buyers of new homes are growing increasingly wary. Rising mortgage rates and declining home sales have heralded the end of a hot housing market that has afflicted buyers for more than a year. According to the Census Bureau, home sales have decreased by over 18% since January 2022. Some locations, though, have cooled faster than others.

SmartAsset examined the 100 largest metro areas, 92 of which had complete data, to determine where housing markets are cooling the most. They compared locations using eight metrics divided into two categories: price reduction and decreased demand. Here are the key findings of the report.

  • California metro areas are cooling off the most.
  • Three California metro areas rank in the top 10 for our study.
  • In these areas, homes are staying on the market longer relative to a year ago – nearly double the amount of time.
  • Moreover, all three areas have seen over a 33% decrease in the number of houses sold monthly from August 2021 to August 2022.
  • The share of listings with price cuts is up 10% from a year ago.
  • Nationally, about 16% of home listings had a price cut in August 2021.
  • Comparatively, that figure is now almost 26%.
  • Homes are on the market for less than 10 days in 36 metro areas.
  • Last year, 67 metro areas fell into that category.
  • Nationally, the average time on the market for a home listing currently stands at 13 days.

1. Boise, ID

The housing market in Boise, Idaho is cooling off the most relative to all other metro areas in our study. Boise has the sixth-lowest ratio of the number of sold houses to new listings (0.49), meaning that almost twice as many houses are being listed relative to the ones that are sold. The median days a house sits on the market is 20, and this figure is almost 186% higher than one year previously.

2. Austin-Round Rock-Georgetown, TX

The fourth-largest metro area in Texas has experienced a chill in its housing market with the fourth-largest decrease in demand and the 13th-largest price reductions. Across specific metrics, Austin-Round Rock-Georgetown has the second-highest median days on the market for home lists (27 days) and the fourth-worst ratio of houses sold to new listings (0.49).

3. Phoenix-Mesa-Chandler, AZ

Phoenix-Mesa-Chandler, Arizona ranks No. 3 overall. The metro area has the fifth-highest percentage of house listings with a price cut (39.61%), which is 25% points higher than a year ago. Additionally, the number of houses sold in a month has declined by more than 41% between August 2021 and August 2022.

4. San Jose-Sunnyvale-Santa Clara, CA

San Jose-Sunnyvale-Santa Clara, California ranks in the top 10 for both larger price reductions and lower demand. Houses are on the market for roughly 19 days (eighth-highest), which is a 90% increase since exactly one year ago (18th-highest). There has also been a 43.17% decrease in the number of houses sold and 26.81% of current listings have a price cut.

5. Las Vegas-Henderson-Paradise, NV

Across all 92 metro areas we considered, Las Vegas-Henderson-Paradise, Nevada ranks worst for our decreased demand category. Over the past year, the number of houses sold monthly has fallen by about 44%. And as a result, Las Vegas-Henderson-Paradise has the third-lowest ratio of the number of sold houses to new listings (0.48), meaning that almost twice as many houses are being listed relative to ones that are sold.

6. Salt Lake City, UT

Salt Lake City, Utah has the eighth-largest decrease in demand and 16th-largest price reductions. Specifically, this area takes spots in the top 10 across five metrics including the percentage of listings with a price cut (41.89%) and the one-year change in the number of houses sold monthly (down 41.88%).

7. North Port-Sarasota-Bradenton, FL

Home prices in North Port-Sarasota-Bradenton, Florida are experiencing significant reductions. As of August 2022, over 31% of house listings have a price cut and the average price cut as a percentage of the home value is almost 6%. Relative to one year previously, this is a 17% increase in the percentage of homes with a price cut.

8. San Diego-Chula Vista-Carlsbad, CA

The San Diego-Chula Vista-Carlsbad, California metro area takes a top 15 spot across three metrics: the one-year change in houses sold (35.53% decrease), the one-year change in the median amount of time that a house is on the market (two times higher) and the percentage point difference between the share of listings with a price cut over one year (17.78%).

9. Provo-Orem, UT

Price reductions on homes in Provo-Orem, Utah have been widespread. The metro area has the second-highest share of listings with a price cut (45.58%) and the largest increase in this figure relative to one year prior (26.26%). In terms of demand, there was a 57.38% decrease in houses sold in the area from August 2021 to August 2022 and there were nearly double the new listings compared to houses sold in August 2022.

10. Stockton, CA

Rounding out the top 10 is Stockton, California, which eighth-longer an average number of days on the market for home listings (19 days) and the 10th-highest one-year change in the percentage of listings with a price cut (33.85%). As of August 2022, over a third of home listings in the area experience a price cut.

Sources:

  • https://smartasset.com/data-studies/where-housing-markets-are-cooling-off-most-2022
  • https://www.redfin.com/news/housing-markets-cooling-fastest-seattle-august-2022/

Blog Posts

Contact

Norada Real Estate Investments 30251 Golden Lantern, Suite E-261 Laguna Niguel, CA 92677

(949) 218-6668
(800) 611-3060
BBB