UPDATED FEBRUARY 2023.
The U.S. unemployment rate dropped to 3.5% in December 2022. In fact, the University of Michigan’s latest Surveys of Consumers now states that two-thirds of consumers are expecting an economic downturn during the next year.1
However, if you follow national news, you’ve probably heard speculation that we could be headed toward a recession. Global trade tensions and a slowdown in the GDP growth rate have sparked volatility in the stock market, leading to economic uncertainty.
Given these differing signals, you may be wondering: How has the U.S. housing market been impacted? Where is it headed? And more importantly … what does it mean for me?
MORTGAGE RATES ARE EDGING BACK UP
Freddie Mac is reporting that the average 30-year fixed mortgage rate is 6.09% and the 15-year fixed is 5.15%. Since October 2021, the mortgage rates have continued to climb starting at 2.88% 30-year fixed in October and rising to today’s 6.09% 30-fixed rate.2
The Federal Reserve recently approved a quarter-point interest rate hike which is the smallest rate hike since March 2022.3 The Fed’s move to slow the pace of the rate hikes sends a message that they see progress with their fight on inflation.
Now the Fed does not set mortgage interest rates for borrowers directly. But mortgage rates are influenced by the yield on 10-year US Treasury bonds. When the Treasury yields go up so do mortgage rates and vice versa.
What does it mean for you? If you’re looking to buy a home, now is a good time to buy. Although rates are higher than they were in 2021, refinancing is always an option when the rates lower again. Purchasing a home is usually a long-term investment. The Mortgage Bankers Association is forecasting a modest drop in mortgage rates throughout 2023 ending the year closer to 5%.3
HOME PRICES COOL NATIONALLY
According to the CoreLogic S&P Case-Shiller Indices, housing prices nationally have cooled by 4% from June 2022’s peak with larger cities being hit the hardest. The rise in interest rates wiped out about 30 percent of homebuyer’s purchasing power. Affordability has become an issue.4
Of course, national averages often don’t present the whole picture. Some markets have seen modest declines, while other areas are witnessing double-digit declines. The key differentiating factor in most cases? Housing affordability.5
Since 2012, home prices have increased at about three times the pace of wages, according to National Association of Realtors chief economist Lawrence Yun.
“Housing unaffordability will hinder sales irrespective of the local job market conditions,” said Yun. “This is evident in the very expensive markets as home prices are either topping off or slightly falling.”5
But what about all this talk of a recession? Will we see housing values plummet like they did in 2008? Economists say no.
If we look at history, the real estate crash experienced during the Great Recession isn’t typical.
The recent Housing and Mortgage Market Review report from Arch Mortgage Insurance provides data to support this. “What we found is that the next recession is likely to be far less severe on the housing market than the last one. It’s not that this time is different; it’s that last time was really different from historic norms.”
“A large decline in national home prices is unlikely in the next recession,” Arch economists write. “A persistent housing shortage should help cushion home price declines.”
What does it mean for you? If you have the ability and desire to buy a home now, don’t let the threat of a recession hold you in limbo. The market is cyclical, and it will experience ups and downs. But over the long term, real estate has consistently proven to be a good investment.
STARTER INVENTORY REMAINS TIGHT WHILE LUXURY MARKET SOFTENS
As we’ve seen in the past, it’s become a tale of two sectors.
The low-end of the market remains highly competitive as buyers compete for affordable housing. A lack of new construction during the last recession led to an undersupply of starter homes. This trend continues—despite growing demand—due to a lack of skilled workers, rising land and material costs, and a slow permitting process in many areas.
The result? There’s been a continuing shortage of homes for sale that Americans can actually afford to buy.
The luxury market, on the other hand, has softened. Economic uncertainty, changes to tax laws, and rising prices have slowed demand. Plus, to recoup their higher costs, builders flocked to this segment—causing an overabundance of supply in some areas.
“If you’re selling an entry-level home, you’re probably still looking at a pretty competitive market in most places,” according to Danielle Hale, chief economist at Realtor.com. “But if you’re selling a more expensive home you probably have to adjust your expectations.”
What does it mean for you? Move-up buyers, you’re in luck! If you’re ready to trade in your starter home for something more luxurious, you may get the best of both sectors. We’re still witnessing strong demand for entry-level homes, giving sellers the upper hand. At the same time, buyers of high-end homes are finding a greater selection (and more negotiating power) than they’ve had in years.
INVESTORS ARE STILL BUYING HOMES
There’s one group that hasn’t been slowed down by lack of affordability or economic uncertainty: investors.
According to CoreLogic, investor activity remained steady at the end of 2022. Investors of all sizes bout 100,000 properties per month nationwide. 4
What does it mean for you? If you’re looking for a way to “recession-proof” your money, you might want to consider investing in real estate. People will always need a place to live, and (unlike the stock market) a rental property can provide a steady source of cash flow during uncertain economic times.
WE’RE HERE TO GUIDE YOU
While national real estate numbers can provide a “big picture” outlook, real estate is local. As local market experts, we can guide you through the ins and outs of our market and the issues most likely to impact sales and home values in your neighborhood.
If you have specific questions or would like more information about how market changes could affect you, contact us to schedule a free consultation. We’re here to help you navigate this shifting real estate landscape.
Sources:
- University of Michigan Surveys of Consumers –
http://www.sca.isr.umich.edu/ - Freddie Mac –
https://freddiemac.gcs-web.com/news-releases/news-release-details/mortgage-rates-continue-shift-down - CNN Business-
https://www.cnn.com/2023/02/02/homes/mortgage-rates-february-2/index.html - US Corelogic S&P Case-Shiller Index –
https://www.corelogic.com/intelligence/us-corelogic-sp-case-shiller-index-growth-rate-cools-further-in-november-up-by-7-7/ - National Association of Realtors –
https://www.nar.realtor/magazine/real-estate-news/nar-home-sales-retreat-but-better-days-likely-are-coming
