January 31, 2023 – Triple Play. This week gives us a plethora of data which could help determine how 2023 is shaping up to be.

Economic Commentary

Triple Play. This week gives us a plethora of data which could help determine how 2023 is shaping up to be. We started out Thursday with the first measure of growth for the last quarter of 2022, which gives us an idea of how we closed out the year. The GDP came in at a 2.9% growth rate, which indicates that a soft landing rather than a recession is more likely in the near term. 

Today and tomorrow the Federal Reserve Board’s Open Market Committee meets and the Fed will be considering this GDP number, the recent inflation numbers and the December jobs report while deciding whether to raise rates an expected .25% or .50% — or surprise the markets with no increase or a larger increase. As always, the markets will be fixated on the Fed’s announcement after the meeting, though at this point they have sounded like a broken record when talking about taming inflation.

And just to make things even more interesting, we end this week with the first data of 2023. On Friday we will see the jobs report for January. Thus far, the employment sector has shrugged off rate increases and the Fed is not likely to halt their war against inflation until there is a slowing of job and wage growth. Up until now the job market has been screaming like Mad Magazine (for those who are old enough) – What Me Worry?

Weekly Interest Rate Overview

The Markets. Rates continued to drift downward in the past week. For the week ending January 26, 30-year rates eased to 6.13% from 6.15% the week before. In addition, 15-year loans decreased to 5.17%. A year ago, 30-year fixed rates averaged 3.55%, more than 2.5% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Mortgage rates continue to tick down and, as a result, home purchase demand is thawing from the months-long freeze that gripped the housing market. Potential homebuyers remain sensitive to changes in mortgage rates, but ample demand remains, fueled by first-time homebuyers.” 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

So, what’s in store for the housing market this year? Home prices rose nearly 40% from the spring of 2020 to the spring of 2022, representing roughly a decade of price gains in just a couple of years. Will what went up also come down? Housing experts and economists are not in agreement. Economists’ predictions range from prices rising by around 5% this year, according to Realtor.com, to as much as a 22% decline from the peak in 2022 to the trough, according to John Burns Real Estate Consulting. What happens with inventory, mortgage rates, and the broader economy will likely determine which tack the market takes. “Mortgage rates are really critical to the path of the housing market in the year ahead,” said Jeff Tucker, senior economist at Zillow. “We are watching to see affordability gradually improve. That should breathe some life back into the market.” Another thing he’s keeping an eye on is inventory of homes for sale, which is already almost back up to where it was in 2020, he said. “Yes, things have cooled way down in the housing market, but we don’t have a glut of homes for sale,” said Tucker. “That is the main thing that is buffering us from runaway price declines.” Zillow forecasts that home prices nationally will decline by between 1% and 4% from last June’s levels, the 2022 peak. In 2023, we may see a mirror image of 2022 — a somewhat trying first half that gives way to a surprisingly strong back half of the year for buyers, said Leonard Steinberg, corporate broker at Compass in New York. “The would-be buyers that stepped back from the market in late 2022 can’t and won’t stay away forever, especially given the competing demands from first-time buyers looking to get into the market and retirees looking to move or downsize,” Steinberg said. Chronic under-building of new homes is also likely to remain a challenge across all market segments as builders grapple with the challenge of balancing a short-term decline in demand with the long-term need for more new housing, he added. Source: CNN

RCLCO, Bethesda, Md., reported master-planned communities–just like the broader U.S. housing market–saw a decline in home sales last year compared to 2021. “The second half of the year in particular saw significant declines, correlated with rising interest rates,” said RCLCO Principal Karl Pischke. Top communities sold nearly 13% fewer homes in the second-half 2022 than in the first half, he said. But Pischke noted master-planned communities have historically increased their overall market share in times of economic turmoil, because consumers believe the quality of such communities provides some insulation from broader market trends. “As such, optimism from MPC developers remains, even if additional softness in the market might be expected in the near-term,” he said. The report said sales are down 20% from last year among the top-selling master-planned communities in the country, as rising interest rates and economic uncertainty continue to unsettle consumers. It indicated that Florida represented nearly 46% of sales among ranked communities, followed by Texas at nearly 30%. RCLCO undertakes this initiative, not only as a way to commend the most successful communities in the country, but also as a tool for monitoring the overall health of the for-sale housing industry, and a means of highlighting the trends affecting communities large and small. This process also serves as a mechanism through which to learn development best practices and pass along lessons gleaned from the MPCs that have pioneered their way into the top ranks. Source: MBA

Home sellers gave concessions to buyers in 41.9% of home sales in the fourth quarter, the highest share of any three-month period in Redfin’s records. Concessions increased over 30% in the previous quarter and the fourth quarter of 2021, and outpaced the prior 40.8% high from the three months ended July 2020, when the housing market nearly came to a halt due to the onset of the coronavirus pandemic. Redfin’s concessions records date back to July 2020 and are based on data submitted by Redfin buyers’ agents. The chaotic homebuying frenzy of 2020 and 2021 is a distant memory, as are record-low mortgage rates that caused an overwhelming demand, forcing most buyers to bid over asking price and waive contingencies just to have their offers taken seriously. “Buyers are asking sellers for things that were unheard of during the past few years,” said Van Welborn, a Redfin real estate agent in Phoenix. “They’re feeling empowered, partly because their offer is often the only one, and partly because they know sellers have built up so much equity during the pandemic that they can afford to dole out sizable concessions.” Welborn said he recently helped one buyer negotiate a $10,000 credit for a new roof and a handful of other repairs. They originally asked for $15,000, but were happy with $10,000 because the homeowner also agreed to sell for less than their asking price. Source: Redfin