2023 has been a trying time in the housing market. In this post, we’ll explore the things that shaped the housing market in 2023 and take a look at the forecasts for the real estate market in 2024. 

 

Factors Behind the 2023 Housing Market Slowdown

The real estate market in 2023 was affected by rising home prices, increased mortgage rates, and low inventory. 

The spike in mortgage rates, which surged beyond 8% for the first time in over two decades, became a barrier for many potential homebuyers. 

This increase not only diminished buying power but also sidelined a portion of the market.

The Federal Reserve’s response to inflation involved a hike in interest rates which further increased the market’s slowdown.

New listings dropped to their lowest level on record – just 5.4 million new listings in 2023, the lowest level on record and a massive 16.4% drop from 2022. 

“The unusual combination of low supply and low demand caused home prices to remain elevated throughout the year, which was bad news for pretty much everyone,” laments Daryl Fairweather, Redfin Senior Chief Economist. “The market was extraordinary; it felt hot, even though very few homes changed hands.”

 

Housing Inventory and Price Trends in 2023

Despite the overall market slowdown, the prices of homes continued on an upward trajectory. This was primarily fueled by the shortage of inventory, a challenge that has been lingering for years.

The supply of homes remained significantly below the levels considered healthy for a balanced market. 

Reports indicated that the housing inventory was about a two-and-a-half-month supply, starkly lower than the ideal six-month supply. 

This scarcity of available homes for sale not only limited options for buyers but also kept the market tilted in favor of sellers. 

 

Predictions for the Housing Market in 2024

The housing market is poised for a period of gradual recovery and adjustment. 

Industry experts predict a few key trends that could shape the real estate landscape in the coming year:

• Mortgage Rates: After reaching two-decade highs in 2023, mortgage rates are expected to start declining, providing some relief to potential homebuyers. While the rates are anticipated to ease, they are likely to remain within the 6% to 7% range, not low enough to significantly boost the inventory of existing homes​​.
• Housing Inventory: The inventory of homes for sale is forecasted to see a modest increase. This is partly due to more sellers expected to enter the market, having delayed selling in the past two years. A 30% increase in housing inventory is anticipated, which could help balance the demand-supply dynamics to some extent.
• Home Prices: Despite the challenges, house prices are projected to continue their upward trend, albeit at a slower rate compared to 2023. The prediction is a national increase of around 2.7% in home prices for 2024​​.
• Market Recovery: Certain U.S. markets are expected to experience a faster recovery in home sales. This recovery is likely to be influenced by the regional economic conditions and the specific characteristics of local housing markets

“The demand for housing will recover from falling mortgage rates and rising income,” Yun said. “In addition, housing inventory is expected to rise by around 30% as more sellers begin to list after delaying selling over the past two years.”

 

In summary, while the housing market in 2024 may not witness a dramatic turnaround, the expected easing of mortgage rates and a slight improvement in inventory levels hint at a more favorable environment for both buyers and sellers. This anticipated shift could mark the beginning of a new phase in the housing market. While the full impact of these changes remains to be seen, they signal a move towards greater stability and opportunity in the real estate sector.

 

The mortgage industry has been closely following the recent decision made by the Federal Reserve (Fed) to raise the interest rates. The Fed’s action to slow down the pace of increases sends a clear message that the central bank is seeing progress in its battle with inflation. This article provides an in-depth analysis of the current state of mortgage rates and what it means for homebuyers and homeowners.

How the Fed Influences Mortgage Rates

The Fed does not set the interest rates directly, but its actions do have an impact on them. Mortgage rates tend to track the yield on 10-year US Treasury bonds, which is influenced by the Fed’s actions, expectations, and investors’ reactions. When Treasury yields go up, so do mortgage rates, and when they go down, mortgage rates tend to follow.

“The Federal Reserve controls short-term rates, but long-term rates, including 30-year mortgage rates, are a function of market expectations for the path of the economy and investors are betting that the economic slowdown and the Fed’s eventual victory over inflation will result in lower rates over time.” –  Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association. 

 

Expert Predictions for February

According to Rick Sharga, Executive Vice President of Market Intelligence for ATTOM, “unless the Fed unexpectedly raises the Fed Funds rate dramatically at its next meeting, or we get a surprisingly bad inflation report, it seems most likely that mortgage rates will plateau or perhaps decline slightly.” Sharga expects rates to average between 6.0% and 6.25% for the 30-year mortgage and between 5.25% and 5.50% for the 15-year mortgage loan in February.”

Nadia Evangelou, Senior Economist and Director of Real Estate Research for the National Association of Realtors, also predicts a continued downward trend in mortgage rates for February. 

What the Market Thinks

After the recent Fed meeting, Chairman Jerome Powell acknowledged that the US has made progress on inflation, but stopped short of saying that inflation was tamed. 

A word from our friends at Fairway Mortgage

“The Fed raised the fed funds rate by .25% as expected.  We knew this – lately we always know this going in. What markets were interested in was the Fed statement and Fed Chair Jerome Powell’s statement and subsequent press conference. Right now mortgage bonds and treasuries are rallying (mortgage rates are getting better) and stocks are rallying on the news.” – Corey Freels 

Powell’s comments and the market’s reaction indicate that the market believes inflation is cooling, which means mortgage rates are coming down.

 

In conclusion, the recent Fed decision to raise interest rates has had a positive impact on the mortgage industry, with experts predicting continued downward trends in mortgage rates. Homebuyers and homeowners should keep an eye on the market and consider taking advantage of these favorable conditions while they last.

 

Our friends at the LTW Group shared with us a presentation by Chief Market Strategist for Residential Finance, Barry Habib.

He answered the questions:

• What’s going to happen with interest rates?
• Is the value of my home going to decrease?
• What’s the forecast for the real estate market in 2023?

What is going to happen with  interest rates?!

The ten year treasury bond and the mortgage rate have a normal spread of 175 – 200bp. 

Should this trend continue – Barry Habib, chief market strategist for Residential Finance, predicts that treasury bonds will come down to three which means mortgage rates will be closer to 5%.

Will the value of my home decrease?

According to the S&P Case-Shiller U.S. National House Price Index, during 8 of the last 9 recessions homes home values went up during and after the recession. 

The only time this didn’t happen was during 2006. 

In 2006 builders built more homes than ever before. 

Household formations dropped! (A household formation is the formation of a new household – think when your adult child moves out of your home.) 

Why did household formations drop in 2006?

On average, an adult moves out of their parents home at the age of 33. When we step back to look at the birth rates of Generation X we see a sharp decline. 

Are we on the brink of another housing bubble?

Quick answer – no! There are no outlandish mortgaging programs out there right now. 

Ultimately, a housing bubble comes down to supply and demand. 

What effects supply?

• Builders finishing homes 
• The number of homes that have to be retired. 

Where does demand come from?

• Household formations. 

 

Babib’s forecast for 2023:

• Low single digit appreciation
• Rents will continue to rise

Huge thanks to our friends at the LTW Group for sharing this fantastic information with us!! 

The LTW Group has a ton of resources and programs that allow buying right now a painless process. Reach out to them today! 

A question everyone wishes we knew the answers to!

While we might not know for sure, we can share a few opinions from industry experts.

Are housing prices going to drop in Gatlinburg, Tennessee?

The short answer: Prices are likely to drop further, but not by as much as they did during the housing bust. 

“It was different in 2008, 2009 because that drop in prices was because of a push from sellers,” said Jeff Tucker, senior economist at Zillow. “Because of foreclosures and short sales there were a lot of extremely motivated sellers who were willing to take a loss on their homes.”

The previous housing crash the inventory of homes for sale was 4x high that it is now! Current inventory is still lower than pre-pandemic levels, which is keeping prices strong.

 

How much are housing prices going to drop?

“Unlike the run-up in prices during the pandemic that caused home values in markets across the country to surge, the cooling off will be more regional, said Tucker.”

 

Tucker predicts there will be a small decline in the Southeast.

 

What does a housing price decline mean for sellers?

Because we’re likely to see a smaller decline in prices in our area – it’s still a great time to sell.

Steven James, the president and chief executive of Berkshire Hathaway HomeServices New York Properties, suggests, “The best strategy for sellers is to start at the right price. The last thing you want in a shifting market is to have something sit.”

We keep a beat on the market statistics monthly, you can see the latest one here. 

 

Are sellers still receiving multiple offers? Are homes still selling over asking?

Lawrence Yun, chief chief economist at the NAR, answers these questions on a National level, ““Despite weaker sales, multiple offers are still occurring with more than a quarter of homes selling above list price due to limited inventory. The current lack of supply underscores the vast contrast with the previous major market downturn from 2008 to 2010, when inventory levels were four times higher than they are today.”

Next week we’ll explore what this looks like locally – while we can’t provide information about multiple offers, we CAN answer some questions about list to sale price ratios! 

 

Are prices falling?

Yun says, “Tight supply continues to put pressure on home prices, with an increase of 8.4% from September 2021. Prices climbed at all price points. This makes 127 consecutive months of annual increases.”

“Prices are cooling, however. September marked the third straight month-to-month price decline, which usually fall this time of this year.”

 

Do we know if they will continue to fall?

Not quite yet, but we’ll keep you informed monthly with market statistics. Did you see last month’s? Check it out here 

 

During the spring home buying boom Zillow made a big claim – home prices would would soar another 17.8% between February 2022 and February 2023. 

Weeks later the Pandemic fizzled.. Zillow slashed its home price outlook. 

In September, the outlook was revised down to 1.2%

Now Zillow expects the U.S. Home values to rise 1.4% 

“Back in May, Moody’s Analytics chief economist Mark Zandi told Fortune that rising mortgage rates coupled with “overvalued” home prices would push the U.S. housing market into a housing correction. A housing correction being a period where the U.S. housing market—which got priced to 3% mortgage rates—would work towards equilibrium. In every market, that’d translate into a sharp decline in home sales. It’d also, Zandi said, put frothy markets at risk of home price corrections.

That’s exactly what we saw this summer: Home sales plummeted across the nation, and frothy markets in the Western half of the country also saw declining home prices.”

Zillow researchers write, “”Across the country, affordability challenges have pushed potential buyers to the sidelines. Of course, this demand destruction has been more pronounced in some markets than in others. Markets with the highest prices a year ago saw disproportionately larger declines in active demand in the 12 months that followed.”

Heading into 2023 Zillow predicts the home price correction will loose steam in some markets while it picks up steam in other places. 

Both Knoxville and Morristown are predicted to rise 5% over the coming year. 

Read more here! 

Everyone wants to know what’s gonna happen to the real estate market?

Forbes Advisor did some research and presented their opinions. 

We’ll share some below. 

Will housing prices continue to rise?

 “Inflation, high mortgage rates and record-high home prices are making it harder and harder to afford a home, and that’s not likely to change soon. Economists at Fannie Mae expect prices to be, on average, 16% higher in the coming quarter than they were a year ago.

MBA economists also expect home price gains for the foreseeable future. They forecast a 9.8% yearly increase for prices in 2022 compared to 2021 and a 2.8% gain in 2023.”

Should I buy now or wait?

“Buy based on your budget and needs. If you find a home you love in an area you love and it also fits your budget, then chances are it might be right for you. But if you make too many sacrifices just to get a house, you may end up with buyer’s remorse and an expensive albatross you have to offload.”

Forbes Advisors has some advise for buyers and sellers in this market, click here to read their article in entirety. 

Last week, we provided market statistics related to the local market. 

This week we’ll provide information about the national market. 

Realtor.com released their July Housing Market Report. Here’s what Sabrina Speianu, Economic Data Manager, had to say, 

“Realtor.com®’s July housing data release reveals that the housing market is continuing to move toward more balance. Inventory levels continue to rise, providing more options to homebuyers who are still actively looking for a new home and price reductions are also increasing, as sellers adjust to the new normal. However, housing remains expensive and fast-paced with the median asking price close to June’s all-time high while time on market is still slightly lower than last year and significantly lower than pre-pandemic levels. Although demand has softened greatly compared to last year, housing activity remains robust compared to pre-pandemic levels.”

 

Top takeaways from the report are:

• Less Frenzy Means More Options for Those Still Looking to Buy a Home
• Time on Market Higher Than Last Year in Many Metros, but Homes Are Still Moving Historically Fast in General
• Signs of Softening Price Growth Are Emerging

 

Click here to read the entire Realtor.com July Housing Market Report

 

What we learned this week:

• Mortgage purchase applications are down 18% 
• New home sales declined 17%
• Introduction of single family homes declined by 16%

What’s that mean?

Even though we saw declines, we are still not in a balance market. 

Brian Neeley with BusinessNews says, “Inventory levels remain 49% below July 2019 levels, giving most sellers enough leverage – at least for now – to hold off on a bottom-market selloff earlier this year.”

Every quarter, Moody’s Analytics calculates an “overvalued” or “undervalued” figure for approximately 400 markets. The firm aims to find out whether fundamentals, including local income levels, can support local home prices. 

In the first quarter of 2022, Moody’s estimated that the average regional housing market was “overvalued” by 23%.

 

 

Moody’s Chief Economist Mark Zandi said Good luck The housing market being “overvalued” by more than 25% is likely to see a 5% to 10% drop in home prices. If a recession occurs, prices in those markets could fall by as much as 15% to 20%.

Click here to read more about Zandi’s predictions!