Remember when I said you missed the great housing crash of 2023?! The data is coming in and coming together. It looks like a dip in housing prices will be short lived and by the end of this year, we will likely see year-over-year numbers coming in flat. Wednesday, we heard from Powell that another rate hike went into place bringing the Fed Funds rate to the 5.25 to 5.5% range. That’s the highest the range has gone to since 2001. Do you remember what you were doing in 2001, where you were? I was a freshman in high school. So that’s a very, very, very long time ago.
Mortgage bonds actually improved following the news because of Powell’s commentary that this could be the last rate hike of the year, that they would pause again at the remainder of 2023 meetings. He also explained that the Fed understands the job market is not as hot as it appears. So now all eyes turn to the PCE report coming Friday. Though we have to assume that Powell had access to that before his announcement today…I mean c’mon….right?! From what I’m reading and based on the GDP numbers we received this morning; it looks like the PCE will have very good news for us tomorrow and I’m hopeful mortgage bonds and rates will react really well.
Back to my psychic skills though.
As interest rates climbed this year and then got stuck in that tree, many were expecting home prices to tank. They did dip but then the inventory crisis kicked in. Even now that interest rates are in the 7’s, residential real estate manages to be back on its way up. Case Shiller has posted gains on home prices for the past 3 months consecutively. May data indicated prices were up .7%. The year-on-year is still negative, showing prices slightly lower (.5%) than where they were at this time last year, but as these month-over-month gains continue – we are very likely to show a slight increase in home values by the end of the year. Meaning when we compare home prices at the end of 2023 to the end of 2022, we will see appreciation.
Meaning the bubble popped, no one screamed and now it’s being inflated again.
Inflated is the wrong word to use here, I apologize. That makes it seem like home prices are inflated. I was just talking about a balloon or bubble in a figurative sense. In literal terms, when you take a cold, hard look at supply and demand, it is very clear why home prices are ticking back up. We know that builders have been underbuilding for a long time. We also know a lot of folks who want a new house are trapped in their current house by interest rates.
Isn’t that ironic?
The Fed raises rates to decrease the cost of goods, specifically housing. As a result of higher interest rates, many homeowners who would have contributed to the resale market are staying in their house rather than selling because they don’t want to deal with the higher interest rates the Fed created. So they add to the inventory problem, which makes the competition for the few homes on the market even tougher, which drives the price of those homes up. The number of homes on the market less than 1 month is at 76%.
This is good news for homeowners who purchased in the last few years, even for those who purchased in the height of madness. It’s not as good news for those on the sidelines trying to jump into the market and still holding out hope for a price dip.
We have to get real.
Even as interest rates come down to 5.5%, which would definitely help with affordability – the drop in rates will be instantly counteracted by the jump in demand. As more buyers qualify again and re-enter the housing market, the new construction supply is not likely going to be able to keep up. And the resale market is still going to be fairly locked up by homeowners not wanting to abandon their 3 or even 2% mortgage. Then there’s the boomers. They hold one-third of the real estate market in our country. And half of them bought before 2000. You know what the means? They’ve got a lot of equity in that house. They’ve seen some record appreciation. They might even have the mortgage paid off. I’m not seeing many indicators that they are selling and taking their chances given the current climate.
So my parting advice remains – stay in the game. You should keep in close contact with your lender to keep your file current, even if you haven’t seen a house of interest in months. Even if you aren’t happy about the proposed mortgage payments. Even if you aren’t going to buy this year. If you want to buy ever, you need to keep a pulse on this market because it’s probably the weirdest one we’ve ever seen. Who knows what’s around the corner? Even Psychic Shiv gets thrown these days.