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October, 2023
Trends In The Housing Market
(Charts courtesy of Keeping Current Matters)
Do I wait or buy/sell now? Are home prices expected to go up or down? What about mortgage rates? Why can’t buyers find homes to buy? And who is selling right now and why? Just some questions that clients are asking and that this version of Market Watch will try to answer, or at least shed some light on.
What Is Going On With Home Prices And Should I Wait Out This Market?
If you are a home buyer and looking to wait out this market for prices to tumble, at least in the Bridgewater area, you may be waiting for a long time. There are just too little inventory available and too much demand for what is available for home prices to fall. That is not to say that homes will appreciate similar to that of 2021, but don’t expect prices to fall 10, 15 or 20 percent as some analysts predict. It is not going to happen. They normally predicate their expectations by stating that new construction will take care of demand, foreclosures will provide new housing opportunities or that supply will suddenly increase due to home sellers having to put their homes on the market. None of which characterizes the local market.
The simple truth is home prices will continue to appreciate, but at more historic rates,. By how much? Taking a look at six different groups, American Enterprise Institute, Zillow, Fannie Mae, Home Price Expectation Survey, Mortgage Bankers Association and the National Association of Realtors (NAR), the average of their forecasts is an increase of 3.3 percent for 2023. Yes, the NAR does see a .4 decrease but that is more than overshadowed by the other forecasts.
And what does it look like for the next five years. The Home Price Expectation Survey, a nationwide panel of over 100 economists, real estate experts and investment and market strategists, suggest prices will continue to climb.
From 3.32 percent (similar to the average above), prices are forecasted to increase each year to 4.18 percent in 2027.
Mortgage Rates Still Hammering Home Buyers
Besides a lack of available homes driving prices upward, home buyers also face increasing mortgage rates. For the week ending October 12, rates were 7.57 percent for a 30-year conventional loan, up from 7.49 the week prior.
This has forced many perspective buyers to leave the market or settle for lower priced home. For example, when rates were 5 percent, a buyer looking at a $600,000 home with 20 percent down, would face a $2,577 monthly payment (principle and interest). At 7.5 percent, that payment would jump to $3,356, a $779 difference, and one that forces a rethinking of home plans.
Where rates go in the future depends on the Federal Reserve and inflation. If inflation remains higher than the 2 percent benchmark the Fed is shooting for, the Fed could increase its Fed Fund rate which in turn, could raise the Treasury yield and mortgage rates. If rates do increase and hit 8 percent, as some analysts suggest, affordability will become an even more issue for home buyers and many more will drop out of the market, decreasing demand, which could stabilize home prices. If the Fed eases, experts predict rates to drop back to the 5.5 percent range. If that occurs, demand could sky rocket and force prices even higher as competition grows for available housing.
A Big Issue For Home Buyers, Supply Versus Demand
Readers of Market Watch are aware of the importance of supply versus demand in today’s housing market. It has been covered at length in previous months. And it hasn’t changed. In fact it is more important now than in previous years, because supply has decreased further, heightening competition and forcing home prices higher.
In September, 2022, the month’s supply of homes, in Bridgewater, stood at 1.49. And during that month, 63 percent of homes sold were at listing price or more, with 67 percent under contract in under 25 days. Last month, month’s supply was .91, a 39 percent drop, with 82 percent of homes sold at listing price or more, and 68 percent under contract in under 25 days. Unless supply increases or demand softens due to higher mortgage rates (see above) or higher prices, competition for available homes will remain fierce among home buyers that can afford today’s prices.
Why Is The Supply Of Homes So Low?
One of the main reasons the supply of homes is so low is the overall success of the Federal Reserve in stimulating the economy in the face of the pandemic. At that time they lowered the Fed Fund rate to near .5 percent, which in turn dropped mortgage rates to under 3 percent. Home owners and buyers took advantage of these rates and refinanced or bought. The result is 70.7 percent of present mortgages are under 4 percent and over 90 percent are under 5 percent. In this environment, not many home owners are willing to trade in their low rate for one that may double.
Taking a look at each grouping, it is safe to say that a home owner with a 3 percent or under mortgage is unlikely to sell unless there is an overriding factor. Between 3 and 4 percent, the probability is high that the owner will not sell. Between 4 and 5 percent, and the owner would have to think hard before selling. Anything over 5 percent and the home owner would probably sell and over 6 definitely. But the point here is that the majority of home owners with mortgages under 5 percent are not going to move without an important reason.
