February of 2023 was another mixed bag for the real estate market as the recent data’s release hinted that we are in an economy that remains more resilient than feared. The labor market remains tight in spite of all layoffs news as the jobless claims remain under 200,000 cases for the seventh consecutive week.
Unfortunately, this good news will only help the headwind against the Fed’s battle, which means the Fed’s intervention is not over yet and is expected to continue to take further actions to continue suppressing inflation. And as we are all aware, that means we can expect them to implement another rate hike. On the bright side, from a gain in new home sales to a modest increase in listings in February, the housing market is showing slight improvement compared to the past 2 months.
With that being said, here’s a quick recap for all market updates for the March issue
Mortgage applications continue to trend downward
As mentioned above, the battle against sticky inflation is far from over as the U.S economy continues to show resilience.
- According to the Mortgage Bankers Association (MBA), the total mortgage loan application volume decreased b y 5.7% from the previous week (as of February 24th).
- According to the Personal Consumption Expenditure report in January, even with an increase in saving rate (by 4.7% in January) after adjusting for inflation, American households recorded a 1.1% increase in spending compared to December 2022 and personal income rose to 0.6% as well, which resulted in stronger consumption reports and “better-than-expected” key economic data report that ultimately drove the Fed’s decision to hike the rate.
Therefore, the 30-year-fixed rate trends up for the 3rd consecutive week (currently stand at average 6.5% and highest since last November of 2022). As a result, many homebuyers remain on the sideline because their affordability was affected.
The market remains semi-active
With the Spring coming, Real Estate agents are getting busier but remain uncertain about the outlook for the remainder of the year. According to C.A.R’s monthly member survey, the listing appointments and other real estate appointments are trending up compared to last month and last year as well as reaching the 2nd highest in the last 16 months. Additionally, 1 out of 5 real estate agents entered escrow early February as the result of lower interest rate around that time. However, with the expectation of another rate hike, we expect the record to drop within the next couple of months overall but we will not be surprised if some markets remain hyperactive such as Orange County and Los Angeles.
New Home Sales remain strong… surprisingly
New construction homes continued to be the star of the game by increasing the sales number for the fourth straight month in January and scored the best performance since last March as they jumped by a whooping 7.2% to a 670,000 unit pace (compared 625,000 units in December respectively). However, the gain in sales was mainly from the South as it made up 17.1% of the total sales while across the rest of the country dropped.
On the builder’s side, construction spending in the residential sector also continues to weaken, which overshadows nonresidential gain. It dipped 0.6% during the month and marked its eight consecutive decline (3.8% compared to the same month of the previous year). This number makes sense as builders, just like any other business owners out there, continue to revise and pivot the direction in order to stay either breakeven or positive.
For the remainder of the year, with the rates trending up once again, home builders will be (once again) pressured to continue offering incentives to sell their inventory.
My Personal Take
In previous market updates, I mentioned that the market shall remain uncertain and we are a quarter in of 2023, we are still not unclear where the markets and the economy are heading to as the Fed is still facing big challenges against inflation and strong labor market. Meanwhile, many are still asking the same questions to our team whether or not when is a good time to make a move. Our answer will be the same now or later.. whenever you are ready and be willing to commit.
With many homebuyers on the sideline due to affordability issue, we’re still in a very rare buyer market at the moment. Yes, interest rate is still quite high but if you are willing to put in the work and to wait, refinancing to a lower rate option is never a bad strategy.
For more questions, comments, concerns, feel free to reach out to our team at info@chadvorealestate.com
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