As we close out 2022, I think it’s safe to say this has been one for the record books. I’d like to take a brief look in the rear view, then a bit of a gaze out the windshield to the horizon that is 2023…
What was expected to happen with the mortgage rates by the end of 2022 happened by the end of March. This definitely affected the sentiment and confidence of the real estate market. Although I haven’t done the year end numbers quite yet, my last several reports have shown about a 25% drop in units sold as compared to 2021 reflecting a market similar to, yet slightly ahead, of 2019. Value, however, has not dropped. It has leveled a bit, but that’s not a bad thing. The rise in value was pricing people out of homes far more than the rise in rates, but that rise is adding people to the wait and see list. The curveball in all this, though, is the inventory. We still have a 30-45 day shortage of inventory in our typically balanced market, which is definitely affecting the value category.
So… Now what?
I sat in on an economic outlook summit hosted by the National Association of REALTORS® earlier this month which included eye opening data presented by the organization’s chief economist Dr. Lawrence Yun, as well as three expert panels discussing rate projections, commercial markets, and consumer needs. (It was excellent and definitely tickled my inner economy geek.) There were two key slides in Dr. Yun’s presentation I wanted to talk briefly about in my blog this month.
The fist is comparing the housing cycle leading into the Great Recession ‘bubble pop’ to now:
I have talked/written/vlogged about this several times over the last month, it’s nice to see it on a NAR slide if I’m being honest. We are not experiencing now what we did then. The differences between the overall health of the economy and stability of lending practices are key to this being a natural market occurrence as opposed to a national market crisis.
The second shows a historic comparison of the gap between the 10-year Treasury Yield and mortgage rates:
Why is this one important? The 10-Year Treasury is the most influential factor for mortgage rates. What’s key here is the gap between the two has been historically wider since the turn of the century. Notice back in the 90s, when rates were closer to double digits, how narrow the gap is. Our current rates are several points below then, but we still have a nice gap which means there’s room to lower the rates, despite the fed, to boost the housing market. A majority of economists representing various organizations in the housing industry, such as the National Home Builders Association, are predicting a leveling then softening of rates for 2023. Is this a guarantee? Nope. No such thing. But as mentioned in this BankRate article, Dr. Yun is predicting rates to be closer to 5.5 by the mid-year. That’s a great rate and doesn’t account for alternative mortgages such as ARM loans. (Watch the video I did about those on our YouTube channel. It’s my prediction that the leveling/lowering of rates, increase in consumer confidence, and boost of inventory will all be very positive for our 2023 market.
I hope this is a helpful illustration of what we are experiencing and may expect in the months to come. If you’d like to learn more about the 10-year treasury and how it affects not just the mortgage market but the investment market as a whole, I found this article from Investopedia that gives a nice overview. And if there are any topics you’d like addressed in my blogs, please feel free to reach out. I’d love to know what you’re curious about.
Cheers to everyone for a healthy, happy, and less tumultuous 2023…
White Diamond Realty