Market Updates
2023 Market Update
When it comes to real estate, I work hard to stay on top of what’s going on with the housing market so I can keep you informed as well! There is a lot being said and written, but I always go back to three things:
We’re in a season with a lot of unknown and upheaval, and no one can truly predict the future.
History is a great teacher
The news is often inflammatory. Remember, they’re trying to run a business as well!
With that as a backdrop, I want to share updates for 2023 from leading economic experts in three areas of concern:
Interest Rates
Whether or not we’re headed for an economic recession, like the housing crash of 2008
And negative equity
Interest Rates
The Housing Wire recently shared:
“The red-hot housing market of the past 2 ½ years was characterized by sub-three percent mortgage rates, fast-paced bidding wars and record-low inventory. But more recently, market conditions have done an about-face. . . . now is the opportunity for everyone to become re-educated about what a ‘typical’ housing market looks like.”
It’s important to remember that 2020 and 2021 were outliers and should not be the expectation. Instead, 2023 is likely to act more like the previous norm before the craziness of the pandemic.
Another helpful insight comes from NAR. They shared:
“While 2022 may be remembered as a year of housing volatility, 2023 likely will become a year of long-lost normalcy returning to the market… mortgage rates are expected to stabilize while home sales and prices moderate after recent highs.”
Right now, the 30-year mortgage is averaging 6.48% while the average interest rate on a 15-year fixed-rate loan is currently at 5.73% according to Freddie Mac's weekly rate report.
Now these may still be high, especially in comparison to those sub-three percent mortgage rates we’ve seen in the past few years, but those should not be here to stay.
Sam Khater, Freddie Mac's chief economist, encouraged that
“While mortgage market activity has shrunk over the last year, inflationary pressures are easing and should lead to lower mortgage rates in 2023.”
Takeaway: We should begin to see the crazy high mortgage interest rates decrease in the coming year.
Recession like 2008 Housing Crash?
Now, let’s talk about the elephant in the room. Are we headed for another recession like we did in 2008 when the housing market crashed?
In short, no. But let me give you confidence in that answer by explaining why.
When you look at the historical perspectives of every great recession in the past century, the 2008 recession had three key factors that were not present in any other recession (and are also not present now):
The generation buying houses in 2008 had a significantly lower birth rate than years prior, or years since. So there was less demand for houses.
There was a surplus of inventory.
They had cheap credit and lax lending standards that fueled a housing bubble. When the bubble burst, the banks were left holding trillions of dollars of worthless investments in subprime mortgages.
Right now, we have much stronger standards for lending, the current age group that makes up the first time homebuyer market is the largest generation in history, and we still have not caught up with the shortage of homes built for the need. We do not have enough supply for the demand!
Takeaway: We may be heading toward a recession, but based on the historical information we have, it won’t be like the 2008 housing crash.
Negative Equity
So what does all this mean for selling and buying homes, especially when it comes to the most important aspect: building equity?
There are a lot of inflammatory, scary headlines out there, like one I just read about negative equity. No one wants that. (Which, by the way, I just shared an excellent article about this on my social media and website, so feel free to check that out because you need to know ALL the facts, not just hear the scary headline).
As we likely head toward lower interest rates and a recession, a big fear is homes losing value, potentially leading to negative equity. But I want to give you confidence that home appreciation will still happen. Homes will continue to increase in value and you will continue building equity. It will just be more like the normalcy we were used to before the craziness of the last two years.
Home appreciation is expected to be around 2.8% year over year for 2023, which is still better than the interest you would earn with money in the bank! Since we’ve had so much upheaval in the past few years, people have started paying more attention to the month-to-month comparisons, but I would encourage you to take a bigger picture perspective in the year-over-year growth, which has continued steadily, even with these recent changes.
David Stevens said it so well. He’s the former Assistant Secretary of Housing, and he shared,
“So be advised…this may be the one and only window for the next few years to get into a buyer’s market. And remember…as the Federal Reserve data shows…home prices only go up and always recover from recessions no matter how mild or severe. Long term homeowners should view this market…right now…as a unique buying opportunity.”
So if you’re interested in buying or selling this year, or talking about any of the topics I covered here, please reach out to me via call, text or email.