January 12, 2023
Amid peaking prices due to inflation and murmurs of an upcoming recession, you might be wondering: What's up with the housing market for 2023? Mortgage rates started to decline in the final weeks of 2022, and demand for housing is similarly expected to fall in the new year. Price growth is also expected to cool — though by how much remains unclear. Whether you're a hopeful buyer or seller in 2023, or just someone who likes to keep tabs on the housing market, here's a closer look at what to expect this year. Where are housing prices headed in 2023? Expect to see home prices continue to decline in 2023 from their recent record highs. Whether that cool-off will be a slow descent or a sudden drop is up for debate. Per Forbes, "[t]here are mixed signals from economists about if and when the housing market will crash, or if it will simply 'correct' itself from the double-digit percentage jumps seen in home prices the past year." A crash would mean a 20 to 30 percent drop in home prices, but some experts argue that the symptoms of that happening soon aren't there yet. Rather, Rick Sharga, executive vice president of market intelligence at ATTOM Data, told Forbes that he estimates "about a 5 percent drop nationally," with some markets continuing to see price increases. Kiplinger, meanwhile, predicts that "house-price growth will likely slow down to a 7 percent annual rate by year-end." What about mortgage rates? As many potential homebuyers are likely well aware, mortgage rates shot sky-high in 2022 as the Federal Reserve hiked rates in an effort to control inflation. But toward the end of 2022, rates finally started to decline — and it's expected that trend could continue in 2023. Kiplinger explains that this drop was in reaction to the recent decline in the 10-year Treasury yield. However, mortgage rates remain "about a full percentage point higher in relation to the 10-year Treasury than would normally be expected." This could be a positive sign of things to come, at least for mortgage rates, as Kiplinger notes that "[m]ortgage rates tend to stay higher for longer when inflation is high, whereas Treasury rates tend to be more sensitive to signs of economic slowing." What will housing inventory look like this year? If you're hoping for a plethora of options as a home shopper in 2023, you might not find them. This is likely the case for existing homes, but perhaps even more so for new builds. Forbes notes that "those who purchased homes in recent years at extremely low mortgage rates are staying put," evidenced by a steady decline in existing home sales in the past year. However, Kiplinger argues that there could be a chance for a recovery in existing home sales by the end of the year if home affordability improves as anticipated. The picture is less rosy when it comes to new builds. Even though new home sales increased somewhat toward the end of 2022, Kiplinger reports that inventory may not pan out, given "an elevated share of that inventory is homes where construction has not yet started, and those projects may not materialize, given the weak conditions in the housing market." Housing starts continued to tumble toward the end of 2022, particularly for single-family homes. Builders might continue to hold off in 2023 "amid soaring mortgage rates and elevated costs for building materials," according to Kiplinger. Is this year a good time to buy a house? While you might be hoping for a simple yes or no, the answer to this question is highly personal. It really depends on what your current financial situation is and what your needs are. Here are four questions to ask as you decide: Are you ready to commit to a location? Buying a house is a commitment — typically, it's recommended that you stay in a house for at least five years to offset the costs of the transaction, per Kiplinger. While people can and absolutely do end up selling sooner than that, it's better to ask yourself if you're really serious about settling down in a particular place before you buy. What's your budget? Before you get carried away with favoriting pretty homes on Zillow, see what's financially feasible. If you're already stretched thin, adding a mortgage to the mix likely isn't a great idea. And then there's also the question of how much you can spend on a home, taking into consideration that home ownership also involves costs like heating and cooling, water, etc. One trick Kiplinger offers for figuring this out: "Lenders usually require that the principal, interest, taxes, and insurance expenses be less than 28 percent of your monthly gross income." Have you saved up for a down payment? Even if you take out a mortgage, you'll still have to put some money down to purchase a home. The minimum required down payment is generally 3 percent, though Kiplinger says that "typical new home buyers put down 6 percent, on average." But if you want to avoid private mortgage insurance getting tacked onto your already stiff monthly mortgage payments, you'll need to put down at least 20 percent. How's your credit score? Having a solid credit score is key to getting approved for a mortgage and securing a competitive rate. According to Kiplinger, lenders generally look for a credit score that is at least over 670. If your credit score has some room for improvement, it makes sense to do that before applying for a mortgage. A couple easy ways to boost your credit score include paying your bills on time and maintaining a credit utilization ratio below 30 percent.
January 6, 2023
Higher borrowing costs are leading to fewer US home sales, but prices are staying elevated in a holdover from the torrid peak-pandemic market.In November, existing home sales were down more than a third from the January 2022 level, according to the National Association of Realtors (NAR).That came shortly after the borrowing rate for a 30-year fixed mortgage -- the reference lending product in US real estate -- hit 7.16 percent in late October, the highest level in 21 years.Interest rates have retreated slightly since then, but stand well above their levels for most of the last decade and a half, a reflection of the Federal Reserve's monetary policy pivot to counter inflation."The market has certainly shifted here in Denver," said David Schlichter, a real estate agent for Compass in Colorado, who called the peak pandemic of the recent past "the hottest market in history."But today's batch of properties last longer on the market and are "selling for a price below the asking price," Schlichter said.Drake, a home buyer who declined to give his last name, expects to soon close on a house in Austin, Texas at four percent below the listing price."Now is the best time to buy in the last 1.5-two years if you're reasonably secure in your job and have a decent down payment saved," he told AFP.Notwithstanding these examples, real estate prices have remained relatively strong, reflecting the limited stock of available homes, said industry insiders.The median sales price in November was $370,700, according to NAR, down 11 percent from the June peak.But that's still up 3.5 percent from the year-ago period and some 30 percent higher compared with May 2020 before the pandemic set the market ablaze. In light of a slowing economy, CoreLogic has forecast that prices will fall 2.8 percent by November in 2023 compared with the 2022 period.But nothing like the 2008 subprime debacle is expected. Between June 2008 and January 2012, home prices slumped 27 percent amid the Great Recession.Few homes availableLending practices in the US housing market have changed significantly from that period.In 2006, nearly 35 percent of mortgages were tied to an adjustable-rate in which lending fees rose when the Fed lifted interest rates.Today, only about 10 percent of mortgages do this, insulating most legacy mortgages from a hit from the Fed's pivot away from near-zero interest rates. The limited volume of available housing stock is another big point of contrast with that period.Real estate companies overbuilt during the last housing boom period during the first decade of the 21st Century, said Lawrence Yun, chief economist at NAR."The homebuilders have been underproducing for this past decade," Yun said. "So if there's a mild recession again, I think the inventory increases should not be that great."Slim pickings as far as available homes for sale translates to lofty home prices, a burden to first-time buyers."Housing affordability is definitely a concern," said Yun. "Many young people who want to be owners don't have the financial resources to become owners."Housing insiders said the impact to home prices from the Fed's dramatic policy change has been less pronounced than expected."Our inventory is still very low, which is keeping prices up," said Richard Stanton of Stanton Company Realtors in Montclair, New Jersey. "I would've thought interest rates would've had a more pronounced effect, but we're really not seeing that right now."Levi Lascsak of real estate agency Living in Dallas said the dynamics are still more of a seller's market, but one that is more balanced compared with a year ago."We're still seeing in the Dallas market, sometimes two or three or four offers on a home," he said. "But last year, we were experiencing, on average, like 25 to 30 offers."© Agence France-Presse