Predictions for the 2023 Housing Market

The current housing market has been deemed the Pandemic Housing Boom because of the rise in buyer demand during the pandemic. This coupled with historically low mortgage rates and super low housing inventory caused the home prices to rise drastically. The Fed hopes this will not be the case in 2023.

When the pandemic hit, the Fed started to purchase bonds making the mortgage rates drop to historical lows. The rising inflation has pushed the Fed to start selling bonds which will cause the mortgage rates to rise. Within the past six months, the average 30-year fixed mortgage rate went from 3.1% to 5.7%.

The rise in the mortgage rates has cooled off the rise in home prices. Unfortunately, it has also put a damper on many borrowers' dreams of owning a home. Borrowers are having a harder time with the debt-to-income ratios and have lost their mortgage eligibility.

According to Zillow, home prices will jump an additional 9.7% between May 2022 and May 2023 instead of what has been seen over the past year of a rise of 20.4%. This slow down will still be double the average annual home price appreciation of 4.4%. Zillow has changed its views in the last few months cutting its price growth by 8.1% percentage points in the last four months. CoreLogic predicts a slower rise of only 5.3%, while Mortgage Bankers Association predicts a 3.1% and Fannie Mae a 3.2% increase.

"The trend appears to show that the market passed an inflection point for home values between April and May, transitioning from ever-hotter to somewhat-cooler price growth. This deceleration is a clear signal that buyers are dialing back their demand for homes in the face of daunting affordability challenges," wrote Zillow economists in their latest outlook.

Some such as Capital Economics predicts home prices to fall 5%. This has only happened twice in the past
five years. Moody's Analytics believes that there will be a 0% rise in some areas even seeing a 5% to 10% decline in home prices.

"Mortgage rates are rising and will reach 6.5% by mid-2023. As a result, mortgage payments as a share of income will exceed the peak seen in the mid-2000s. That will cut home sales, with existing sales ending 2022 more than 20% down from their end-2021 level. House prices will also decline as affordability constraints bite, but tight markets and a lack of forced sellers means we expect the drop to be relatively modest, with annual growth falling to -5% by mid-2023," wrote Capital Economics in its latest outlook.

"The housing market has peaked. … Everything points to a rolling over of the housing market," says Moody's Analytics chief economist Mark Zandi.

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Rising Home Prices Are Clashing With the Slowdown in Economic Growth

 Are rising home prices a wild card for the Federal Reserve?

According to an article posted by Bloomberg, the high home prices are a hitch in the Federal Reserve's plans for the nation's slowing economy. Many say that this is the worst inflation the country has seen in forty years. The Federal Reserve wants to put a stop to the inflation that is currently hurting our economy.

The change is planned to come around September of this year. The goal is to have its policy rate at a level it considers to be restrictive, putting further downward pressure on prices.

In order for this to happen there are several factors that have to align. The three biggest are the country needs to pay three months of declining core inflation, measured month-over-month, the rate of home price appreciation needs to slow down in market price gauges and energy prices need to stay contained. If this does happen, the Fed will be able to slow the rise in interest rates.

The reason the change will not happen until September or later is that Colin Powell wants to witness a slow down in inflation via several reports. The one thing that will stall this is the housing market. Why? Because housing inflation falls behind market prices by several months.

This means that when market prices slow down, the housing market will continue to rise for several months extending into 2023. The housing market is still going strong because of low invetnory.

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Steps To Take When Buying A House

They say buying a house is part of the American dream. Buying a house is one of life's biggest events. When you are ready to take the leap, here are some steps you need to take.

What to Consider Beforehand

Make sure you are ready to become a homeowner because it is not always the best decision for everyone, renting might be the best way to go for some. There are a ton of responsibilities that come along with owning a home such as regular maintenance, inspections, taxes, and more.

Another thing to consider is the timing factor. Look at the mortgage rates and home prices are they rising or staying the same? If the rates are starting to take a leap, then you might want to move quickly. Also, the time of the season can also determine the best time for you to start your search. Spring is typically when listings hit the market. This means that there will be more options for you to choose from. On the downside, it is the most competitive season for buyers.

The last and most important thing is are your finances in good shape. Only set out to purchase a home if you are financially stable. Remember you will need to set aside savings for a down payment and closing costs. If your credit score could be higher, pay off some of your debt to boost your score.

How to Plan Your Budget

Budgeting is essential when it comes to buying a home. Set a time frame of how long it will take you to build up a good down payment. Once you have this timeframe, research Realtors in your area and find the best fit for you. Keep in mind that it takes around a couple of days to a couple of months to find your ideal home, then around 30 - 60 days to complete the transaction from contract to close.

Along with finding a real estate agent, you will need to find a mortgage lender. The best bet is to shop around for the best rates and offers. This will also depend on your credit score. Having an established credit history and a high credit score can allow you to get a better rate on a mortgage.

To check your score, obtain a credit report from Experian, TransUnion, and Equifax. These three credit bureaus allow a free report every 12 months. Lenders typically require a credit score of 620 or higher to be able to obtain a mortgage. If your score is a little iffy, raise it before you apply for a loan.

In order to raise your credit score you will need to pay your bills on time, pay off debt and keep a low balance on your credit cards, and check for any mistakes on your credit report. Lenders want to know they can depend on you to pay you mortgage payment on time.

If you are not able to raise your score or get it over 620, then there are other financing options available. The Federal Housing Administration (FHA) only requires a score of 500 with a 10% down payment or 580 with a 3.5% down payment.

How Much House Can I Afford

When buying a home, you are not just paying the listing price, there are hidden costs. When budgeting, allow for a down payment, closing costs, moving and maintenance costs, as well as an emergency fund for any unplanned maintenance.

You will need to set aside at least 20% of the price of the home for a downpayment on a conventional mortgage. Closing costs are another thing you will need to pay out of pocket which can be between 2% and 5% of the home's purchase price. Remember to always factor in closing costs to your budget! You will also need to pay to move and make any necessary repairs before moving in.

Along with your monthly mortgage payment, you will also have monthly expenses such as utilities, transportation, groceries, entertainment, childcare, credit card debt, savings, etc. A good rule of thumb is for your mortgage payment to be below 28% of your monthly income.

Shopping Around for the Right Everything

When purchasing a house, you not only have to shop around for the right home, but also for a Realtor and a mortgage lender. Doing your due diligence on both can save you time, money, and heartache.

There are many lenders out there who offer different rates and terms. Shop around for the best lender who offers better products. There are several different types of loans with different qualifications. A lender can help you choose the right one for you and also get you pre-approved.

A pre-approval letter can sometimes be the golden ticket for the seller. This tells the seller that you are a serious buyer and you have the finances to back it up. In order to get a pre-approval letter, your lender will need to verify your finances and check your credit score.

A Realtor is your saving grace through the entire process. When choosing a Realtor, it is always good to get referrals. You want to make sure the agent your are considering has a good reputation and experience. It is a good idea to interview several agents to see if they are a match and would work well with you.

Once you have a lender and a Realtor you need to find your home. An agent can help narrow your search by finding a home that fits most of your needs and wants. Your agent should have an extensive amount of knowledge about the neighborhoods you are interested in.

Reaching the Finish Line

Once you have found your home, it is time to make an offer. Your Realtor will advise you on the best approach and will negotiate your contract. Once everything is settled such as contingencies, a home inspection, and disclosures, you are ready to close. Remember your Realtor will help you along the way and make sure you get the best deal.

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Tips To Find The Right Home Builder

 Building a home can be one of the biggest life changes you make. Not only is it a big event in your life, but also is one of the biggest investments that you will make. If you are planning on building a home, choosing the right builder can be very important. Not only should your builder be professional and experienced but also needs to be the right fit for your needs and situation.

1. Get Prepared Before You Search.

Just like when making an offer to a seller without a pre-approval makes no sense, looking for a builder without a pre-approval for a construction loan doesn't either. You will want to get pre-approved so that builders you inquire on will know that you are serious.

Before you begin your search you need to determine what type of home you want to build and how much you are willing to spend. There are tons of builders out there with great credentials, but a first-time homebuyer is not going to choose a luxury custom home builder. Find a home builder that builds something in your price range.

2. Be Clear And Look For Experience.

When speaking with a builder, you want to be clear and concise with what you want in your new home so you can compare what each builder may offer. If you want hardwood floors but forget to mention this, then a builder can give you an accurate proposal.

Not only do you need to be transparent with exactly what you want in a home but you also need to ask questions. Ask the builder how long they have been in business? If it is a company with several builders, then ask how long the company has been in business and how long has its principals been building homes. The more questions you ask, the better you will see if the builder is right for you.

3. What's Their "Happy Homeowner" Quotient?

If you are building in a certain community, ask around and see what the neighbors think of the builder. Several questions to ask would be, would they build another home with their builder, would they recommend their builder to a friend or relative, how is the builder's service or how are they at communicating? If you are building on a single lot, ask the builder for references from previous homebuyers.

Another good source is to ask the experts. Lenders, Real Estate Agents, Building Material Suppliers, Builders Associations, and Code Inspectors work closely with builders and can tell you who to go with or who not to go with. Ask them who their top 3 to 5 builders in the area are and why.

4. Make Sure You Are Protected.

Make sure each builder you are considering has a license and is insured. There are several states in the country that do not have laws in place to make sure all builders are covered. Ask to see verification that you, the company, the builder, and the builder's employees are covered if there is a loss or accident.

Another thing you want to make sure to have is a warranty. Many products you purchase come with a warranty, so why shouldn't a large investment such as a home not have one? A promise from the builder is not enough, make sure your home should come with a long-term written & insured 3rd party warranty, not just a promise from the builder to perform.  This covers you even if the builder goes out of business.

Remember building a home is a big investment and you do not want just any Joe builder to come along and build it. Make sure you have gone above and beyond the steps mentioned here to make sure your builder is a professional with a clean slate.

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Baby Boomers Are Taking Advantage of the Current Home Seller's Market

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The current housing market is the hottest it has been since before the Great Recession. According to the National Association of Realtors® 2021 Home Buyers and Sellers Generational Trends Report, sellers made a median of $66,000 on the sale of their homes this year. This is a $6,000 increase from the same time in 2020. Sellers are reaping the benefits and the majority of sellers today are baby boomers.

"In a real estate market that is tipped in the favor of sellers, boomers and older homeowners are really the ones holding the cards," says realtor.com® Chief Economist Danielle Hale. Those who are selling homes can use the profits to help them buy new ones, she adds, pointing out that they're "generally better equipped to deal with market conditions."

Record low mortgage rates and lack of home inventory have buyers in a big competition. This buyer frenzy means homes are selling quickly and for high prices. Today sellers are getting roughly 99% of their original asking price for their home. Some sellers are even seeing bidding wars, getting a higher price than the original asking price. Current inventory is lasting only 3 weeks before they are sold.

When looking at sellers by generation, baby boomers make up 43% of those currently selling a home. Baby boomers are in a stage of life where they want to downsize. The pandemic has also shifted many baby boomers to want to move closer to family members in the same sized home.

Millennials make up the largest share of buyers at 37%. Out of the 37%, 31% of those buyers were first-time homebuyers. This market is a difficult market to navigate for first-time homebuyers."Millennials have a lot of headwinds entering the real estate market," says Jessica Lautz, NAR’s vice president of demographics and behavioral insights. "There's not enough homes to go around for the buyers who want to be able to purchase."

Another surprising fact is that younger buyers are more likely to pay over the asking price in this competitive market. “In a market where competitive bids are the norm in many areas, it’s interesting to note that younger buyers are more likely to pay over asking [price]," says Hale. "They've got longer working careers, so they [may be] more willing to take risks."

Of those homes that are in most demand, detached, single-family homes made up 81% of the sales so far this year. Buyers want a detached home with a backyard and a garage. Families want their own space and more space to accommodate home offices and remote schooling. Existing home sales are in more demand due to cheaper pricing and more in inventory. Only 15% of homes sold so far this year are new construction.

Generation X made up 18% of buyers that purchased multigenerational homes. This generation has aging parents that might need assistance. "They're purchasing multi-generational homes [to] take care of aging relatives and keep them out of nursing rooms or for caregiving of young children who may not be able to go to daycare or child care because of the pandemic," says Lautz. "The other big reason is pooling incomes to be able to buy a larger home."

The study indicated that today's typical buyer has a median income of $96,500 in 2019 with 65% married. 18% single women, 9% single men and 9% unmarried couples. “Single women remain a large buying force,” Lautz said in a statement. “A number of divorced women and those who were recently widowed purchased a home without the help of a spouse or roommate.”

Eighty-seven percent of buyers financed their homes while young buyers were the most likely to put all of their savings toward a down payment. Older buyers, such as baby boomers, purchased homes using money earned off a home sale.

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Perks in the Housing Market For Present-Day Buyers and Sellers

The current housing market offers perfect opportunities for both buying and selling a home. In today's

market, there are a couple of perks for both home buyers and sellers that are hardly ever available.

This is a perfect time to purchase a home because of the historic low mortgage rates. The average mortgage interest rate has hit an all-time low. In fact, it is the lowest in the history of the Freddie Mac survey which dates back to 1971. Today's buyers can actually obtain a mortgage rate lower than the past two generations of homebuyers.

“Purchasing power rose 10% year-over-year…With interest rates hitting record lows, buyers were able to afford $32,000 “more house” as of July 23 than they could the year before with the same monthly payment,” according to the National Mortgage News.

Buyers will not only save money on a home, but they will have the opportunity to get more home for the money. This is especially appealing with today's pandemic pushing work from home. Homeowners are re-evaluating the amount of space they need in a home.

As for current sellers in the market, the low inventory has definitely been an advantage. According to the National Association of Realtors (NAR) the inventory of homes coming into the market continues to decline.  Even before the pandemic hit, the inventory was low. In today's market, houses are selling faster than they are being listed.

Bidding wars are the norm now. The fuel of low mortgage rates and low inventory is pushing buyers into bidding wars.

“Home prices rose during the lockdown and could rise even further due to heavy buyer competition and a significant shortage of supply,” says Lawrence Yun, Chief Economist for NAR.

If you are in the market for a home or want to sell your current home, now is the time. Contact a Realtor in your area who can help you through the process.

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Mortgage Refinance Demand Up 20% in 2021

 

The beginning of 2021 has been an uptick in mortgage rates. This upward climb has many rushing to take advantage of the record low rates. According to Mortgage Bankers Association's seasonally adjusted rate index, mortgage applications to refinance on a home loan have risen 20% last the first full week in January compared to the week before.

“Booming refinance activity in the first full week of 2021 caused mortgage applications to surge to their highest level since March 2020, despite most mortgage rates in the survey rising last week,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting. “The expectation of additional fiscal stimulus from the incoming administration, and the rollout of vaccines improving the outlook, drove Treasury yields and rates higher.”

According to the report, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) increased to 2.88% from 2.86% last week for loans with a 20% down payment. This makes the current rate 99 basis points higher than a year ago.

“For now, an air of mortgage rate invincibility and persistent setting of new record lows has been replaced by a healthy respect for what may be the first stage of a rising rate environment, the first time we’ve seen such a thing since 2018,” said Matthew Graham, chief operating officer at Mortgage News Daily.

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