October 2022 Real Estate Market Update

October 17, 2022

Monthly Market Updates

There is much economic uncertainty, and a lot going on in the housing marketing right now. It is a very pivotal time for both buyers and sellers, so we are going to focus this month on some of the top real estate questions.

 

 

Let’s start with the rising interest rate environment we are in right now.

 

And it says that mortgage rates rise for the sixth consecutive week. Rates have been rising since the beginning of the year. And look at this sharp incline that we've seen over just the past six weeks. Mortgage rates are rising very rapidly. Now, what you're seeing here is a look back. So this is saying that rates are an average of 6.7%. That was released at the end of September right before this recording was made. And that is a look back. So what we also know is that with mortgage rates rising like this, you may be seeing a number that's even higher than that today. That is very much the reality. But what we can see over time, regardless of it this week or next week, is the trend is an upward direction.   https://freddiemac.gcs-web.com/node/25916/pdf http://www.freddiemac.com/pmms/

 

Mortgage rates have been rising since the beginning of the year, with a sharp incline over the past several weeks. There is a definite trend in an upward direction.

 

The aim of Fed tightening is to curtail demand in an effort to tame inflation, and when it comes to the housing market, the Fed’s actions are working. Home sales, both new and existing, are falling, builders have cut back production in response to rapidly declining affordability...  and annual house price growth has slowed from the peak of nearly 21% in March of this year to 16.7% in July. Odeta Kushi, Deputy Chief Economist, First American

 

The Federal Reserve is trying to bring down inflation by slowing the economy, which is having an impact on mortgage rates. When inflation is high, mortgage rates tend to be high as well. Until inflation is down significantly, mortgage rates will rise, and demand will fall. Mortgage rates are likely increase over the next few months.

 

There is no doubt that the increasing mortgage rate will make homebuying even more challenging... buyers may still find opportunities, as these changes coincide with the time of the year when buyers have historically found the best market conditions to obtain more bargaining power. Jiayi Xu,Economist, realtor.com

 

As mortgage rates rise, sales decline. This creates more inventory, or options, in the housing market for buyers as the frenzy of multiple offer situations is behind us. However, as mortgages rates rise, homes are less affordable. One of the best courses of action to combat the affordability issue is to work with a real estate agent who can recommend several, local, trusted lenders to find the right mortgage product for your particular situation. Consider local and national down payment assistance programs.

 

Supply and demand drives prices. the supply and demand ratio in real estate has changed very, very quickly. You know, this is a measure of showings, which is going to be demand in active listings, which is supply. The last couple of years during COVID, we saw a real estate market like we've never seen before. The meaning of home changed, interest rates dropped and so many people said, now is the time we're going to buy a home because we need something different. Or, you know, the needs that our family or we have changed dramatically. So what happened? Showings, that's the demand side that went through the roof, where we saw pictures of lines of people lined up around homes and, you know, bidding wars and all that was a tremendous amount of demand that was out in the markets and what happened with listings, listings dropped. We've seen sort of a record low amount of homes on the market at any one time, causing, you know, bidding wars and price escalations, all of those things. But, you know, really showings through the roof and listings lower than they've been in quite, quite some time. And what's happened, we literally seen the inverse of that. Showing is down nationally right now, just over 12% in active listings, up over 27%. That has not been the story of the last couple of years. That's an inflection point in our business.    Supply and demand drives prices. the supply and demand ratio in real estate has changed very, very quickly. You know, this is a measure of showings, which is going to be demand in active listings, which is supply. The last couple of years during COVID, we saw a real estate market like we've never seen before. The meaning of home changed, interest rates dropped and so many people said, now is the time we're going to buy a home because we need something different. Or, you know, the needs that our family or we have changed dramatically. So what happened? Showings, that's the demand side that went through the roof, where we saw pictures of lines of people lined up around homes and, you know, bidding wars and all that was a tremendous amount of demand that was out in the markets and what happened with listings, listings dropped. We've seen sort of a record low amount of homes on the market at any one time, causing, you know, bidding wars and price escalations, all of those things. But, you know, really showings through the roof and listings lower than they've been in quite, quite some time. And what's happened, we literally seen the inverse of that. Showing is down nationally right now, just over 12% in active listings, up over 27%. That has not been the story of the last couple of years. That's an inflection point in our business.  https://www.showingtime.com/blog/august-2022-showing-index-results/ https://news.move.com/2022-09-29-Realtor-com-R-September-Housing-Report-Fall-Home-Shoppers-Find-More-Options-Amid-Still-High-Listing-Prices

 

Supply and demand drive prices. The supply and demand ratio has undergone some dramatic changes recently. In real estate, demand is represented by showings, and supply is represented by active listings. The past few years, we saw a real estate market like we've never seen before. For many, the meaning of home changed, for others, interest rates dropped significantly. Whatever the reason, demand was through the roof – lines of people to get into homes, bidding wars, record low inventory, and price escalations. However, today we are seeing a national decrease of 12% in showings and an increase of 27% in active listings.

 

We’re not at risk of a collapse today in the financial system like we were before. It’s true - housing may be a little frothy. So housing prices may come down or they may plateau but not to the extent it happened [2008].  John Paulson, Billionaire Hedge Fund Manager Who Called 2008 Crash

 

This is an inflection point in real estate.  Prices have to decline to restore market balance.

 

Here's a look at the 2023 home price forecast. When you look at Fannie and Freddie and MBA and the Home Price Expectations Survey and NAR and Zelman, we talk about calling for depreciation. Ivy Zelman, Fannie or Freddie that are calling for 4% appreciation. If you look at the average of all of these forecasters, including the depreciation forecast, 1.8% appreciation. So if you ask me right now, what's the forecast going into 2023 for home price growth? Best case scenario is probably around 2% price appreciation excuse me, in home prices.   https://www.fanniemae.com/media/44466/display https://www.freddiemac.com/research/forecast/20220720-quarterly-forecast-market-slowdown-will-continue-high-rates-and-prices-exacerbate https://cdn.nar.realtor/sites/default/files/documents/forecast-q4-2022-us-economic-outlook-09-28-2022.pdf https://pulsenomics.com/surveys/#home-price-expectations https://www.zelmanassociates.com/ (subscription required) https://www.mba.org/docs/default-source/research-and-forecasts/forecasts/mortgage-finance-forecast-sep-2022.pdf

 

Looking at the 2023 home price forecast of Fannie Mae, Freddie Mac, The Mortgage Bankers Association (MBA), the Home Price Expectations Survey (HPES), the National Association of Realtors® (NAR), and Zelman, we see an average of 1.8% price appreciation.

 

All this said, many are wondering if now is the right time to buy a home.

 

For many households, home equity is the only source of wealth creation. As a result, recent record gains in equity and record declines in loan-to-value ratios will provide many owners with a financial buffer in case economic conditions worsen.   Selma Hepp, Interim Lead of the Office of the Chief Economist, CoreLogic

 

Homeownership is truly a long-term financial investment, which means the gains are also long term. Equity is a huge source of wealth creation. The net worth of a homeowner is 40 times greater than that of a renter – a huge differentiator for people's long term wealth gain. Also, the recent record gains in equity are a financial buffer in case economic conditions worsen. Finally, equity is a fuel for housing demand. It is what keeps people in the housing market – what keeps demand high.

 

According to CoreLogic, the national average for home equity gain across the country is over $60,000 over the past year, and over $90,000 for Florida.  https://www.corelogic.com/intelligence/homeowner-equity-insights/

 

According to CoreLogic, the national average for home equity gain across the country is over $60,000 over the past year, and about $100,000 in Florida. The total average equity per borrower has now reached almost $300,000.

 

if we look at the percent change in home prices over time, this is where it becomes the long game. As we start to talk about what's happened over the past 30 years. Well, this is the percent change in home prices as of Q2 of 2022, going all the way back to 1991. So a 30 year look, the national average, home prices have increased by 290%. That is massive. That is when we say, you know, homeownership is the long game. Homeownership wins over time in a 30 year period. Given all the ups and downs that have happened along the way, home prices are up 290% in some places, significantly higher than that as well. So that is a significant source of wealth and growth for a homeowner.   https://www.fhfa.gov/DataTools/Tools/Pages/House-Price-Index-(HPI).aspx

 

To touch back on the point that homeownership is a long-term game, we take a look at the percent change in home prices over the past 30 years. Home prices have increased by 290% nationally, and over 500% in Florida. That is massive. Throughout all the ups and downs that have happened along the way, home prices are significantly higher.

 

Rent has skyrocketed over that same period of time, roughly 30 years. Here you can see how much monthly rents have increased and that is exponential. And so when someone's asking, should I buy a home, you know, you can either put all of that money over time into rent and not get that return or invest it in home ownership or that return on your investment. And that is huge. And well, we know that everyone purchased a home at different times for different reasons. We know that there are certainly affordability challenges out there right now. But the real crisis right now is renting.  http://www.census.gov/housing/hvs/files/currenthvspress.pdf Table 11A. Median Asking Rent for the U.S. and Regions: 1988 to Present

 

Rent has not only skyrocketed over that same period of time, but provides no return on the investment.


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