December 27, 2022 – Happy New Year! You will see a plethora of forecasts by many prognosticators in this publication over the next several weeks.

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Economic Commentary

Happy New Year! Well, here we are. Another year has gone by, and we are wondering where it went. Don’t look now, but it is behind you. The year was a year of ups and downs. Interest rates were up. Refinances and home buying were down. Home prices were way higher, then down a bit. Stocks were higher, then way lower – and then started moving higher again.

Does that make you dizzy? It certainly was a roller-coaster type of year. Next year we will try to reverse some of these directions. As a matter of fact, you will see a plethora of forecasts by many prognosticators in this publication over the next several weeks. And the one thing we will guarantee—is that many of these forecasts will be wrong. We just can’t tell you which ones are right.

No one can predict the future. We could not predict the pandemic. We could not predict that the pandemic would lead to a red-hot housing market. We also could not predict that mortgage rates would move up so rapidly. But they did. We also can say that whatever forecast comes true, it will likely happen more quickly than we thought. Because today, life seems to move faster than it used to. Or perhaps we are getting slower. If things do change quickly in 2023—it will likely be another interesting year.

Weekly Interest Rate Overview

The Markets. Rates continued to test their most recent lows this past week, with a lot of intra-day volatility. For the week ending December 22, 30-year rates fell to 6.27% from 6.31% the week before. In addition, 15-year loans decreased to 5.69%. A year ago, 30-year fixed rates averaged 3.03%, more than 3.0% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Heading into the holidays, mortgage rates continued to move down. Rates have declined significantly over the past six weeks, which is helpful for potential homebuyers, but new data indicates homeowners are hesitant to list their homes. Many of those homeowners are carefully weighing their options as more than two-thirds of current homeowners have a fixed mortgage rate of below four percent.”  Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes. 

Real Estate News

Sharply rising mortgage rates, a steep decline in home sales and a record price slowdown have raised concerns that the housing market could crash. But experts argue that these market trends are a symptom of a correction after two years of massive growth and several key elements present during the 2008 housing crash are missing in today’s current economic climate. Experts say the housing market and the larger economy are markedly different from the 2008 financial crisis, when the housing bubble burst. “At that time there was a glut of housing inventory. Overbuilding had taken place – too much home construction relative to household formations,” Robert Dietz, chief economist for the National Association of Homebuilders, told The Hill. “You had a lot of risky mortgage underwriting that put us in a position that when home price declines occurred and then ultimately combined with a rising unemployment rate [there were] lots of underwater mortgages and rising foreclosure rates, and it took some time for the housing glut to be reduced,” Dietz said. The housing glut was followed by close to a decade of underbuilding that contributed to a shortage of at least one million homes today. This was exacerbated by millennials coming of age near the end of this period of underproduction. Millennials’ ongoing needs could also put a floor on prices, Yelena Maleyev, an economist with KPMG Economics, told The Hill. “Millennials are going to continue aging into their prime home buying years. We’ve had household formation outpacing new building for many years now,” Maleyev said. Economists expect further declines in the housing market, but Dietz said the numbers should be put into context. Source: The Hill

In November of 2022, 36 percent of single-family home builders reported reducing their prices, and 59 percent were offering special sales incentives. These percentages may seem relatively high—and in fact they have increased significantly since July of this year—but they are nowhere near as high as they were during the 2007-2008 financial crisis. Questions on sales incentives have been a regular topic on the monthly survey for the NAHB/Wells Fargo Housing Market Index (HMI) since the 1990s. The questions on price reductions were introduced during the financial crisis and have been revisited several times since then. In July of 2022, 13 percent of builders reported that they had reduced home prices during the past month to bolster sales volume and/or limit cancellations. This subsequently increased to 19 percent in August, 26 percent in September, and 36 percent in November. Even at 36 percent, however, the current percentage doesn’t seem terribly high compared to May 2007 through March of 2008, when the share of builders cutting prices was consistently 48 percent or higher—as high as 59 percent in October of 2007. Among builders who did reduce their home prices, the average reduction was 5 percent in July of 2022, and 6 percent in the three surveys conducted since then. In the 2007-2008 crisis period, however, the average monthly reduction in house price was consistently 7 percent or higher—as high as 10 percent in February of 2008. When the question was first asked In May of 1995, 74 percent of builders reported offering sales incentives. The percentage never fell below 50 until July of 2022, when it dipped to 43. Although many builders offer incentives as a matter or routine, the share does fluctuate somewhat in response to market conditions. During the latter part of 2022, the share of builders offering incentives increased from 43 percent in July to 53 percent in September and 59 percent in November. In the 2007-2008 crisis period, however, the share offering incentives was usually well over 70 percent—as high as 86 percent in December of 2008. Source: NAHB Eye on Housing Blog

As the housing market rebalances, homes on the market that sell are doing so relatively quickly — slower than at the height of last year’s frenzy, but more quickly than pre-pandemic norms — according to a new market latest analysis from Zillow. Data also found that other homes are lingering on the market much longer, motivating sellers to build an attractive and competitively priced listing to attract a buyer in today’s market. Differences in days to pending — the median number of days homes that sell have been listed before an offer is accepted— and the age of inventory — the median number of days homes currently listed for sale have been on the market — can reveal valuable information for home sellers, especially during a time of transition. Gaps between the median age of inventory and typical time on the market for homes that sell can reveal markets in which certain home types, neighborhoods or price points are in demand, while others linger on the market. While buyers have won back some negotiating power, sellers with an attractive listing can still expect a fairly quick sale. Looking at the full stock of for-sale listings, homes have been on the market a median of 54 days as of mid-October, a 45% increase from a year earlier. Source: DSNews

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