Attempting to forecast the housing market’s trajectory is always a challenging task, and in the current economic climate, it becomes even more complex. Nevertheless, having an investing thesis and exploring potential outcomes is not only crucial but also an enjoyable exercise. Yes, it is completely okay to agree to disagree with us. We rather have meaningful discussions and debates rather than receiving no opinions whatsoever.
In this article, we will share four predictions for the summer of 2023’s housing market, accompanied by three key indicators that could significantly impact and potentially alter these predictions, which everyone should pay attention to as well and not just us.
Mortgage Rates: Anticipated Fluctuations within a Steady Range
First, the very obvious prediction (just like many other economists out there), interest rate will remain higher than the previous decades.
With the Federal Reserve’s recent decision to raise the Federal Funds Rate by 25 basis points, speculation arises regarding the trajectory of mortgage rates. Despite the possibility of a pause in rate hikes, core inflation remains high, and the labor market remains exceptionally tight. Consequently, it is premature to assume that the tightening cycle has concluded.
However, regardless of the Federal Reserve’s actions, it is likely that mortgage rates will remain relatively stable, hovering around the mid-6% range, mirroring the pattern observed in recent months. Despite multiple increases in the Federal Funds Rate, bond yields have remained steady, indicating a level of stability in mortgage rates.
Home Prices: Rebounding from Winter Lows, Yet Lagging Year-Over-Year
When analyzing home prices, it is crucial to examine both month-over-month and year-over-year data to gain a comprehensive understanding of trends. While recent months have seen a gradual increase in prices following a period of decline that reached its lowest point in February, it is important to note that prices still fall short of last year’s figures, resulting in a year-over-year decline.
This trend is anticipated to persist throughout the summer, with prices following seasonal patterns but remaining below the levels seen in the previous year. While the most likely scenario predicts continued price depreciation, there is a possibility of positive growth emerging sometime after the summer. And the craziest thing to us is despite the rising in interest rate, the seller’s expectation seems to remain the same as of last year while the median sale price trend shows buyer’s expectation is dropping at a moderate level.
Redfin has done a great job analyzing the trend and for more insights from the giant prop tech firm, click here.
Home Sales: A Lingering Recovery Challenge
The housing market faces a significant obstacle in the form of historically low home sales volume. Limited available properties contribute to this challenge, negatively impacting housing prices and various professionals in the industry.
Despite potential increases in demand, the recovery of home sales volume is expected to be slow. By examining the factors contributing to this situation, we can understand the implications for the housing market as a whole. However, based on the previous point, with the buyers & sellers expectation remains wide, housing inventories may experience a tremendous drop comparing to prior years.
This scarcity of available properties is projected to persist throughout the summer, resulting in the lowest number of new listings in July and August and perhaps even September and October, possibly reaching the lowest point in two decades. By analyzing the reasons behind this reluctance to sell properties, we gain insights into market dynamics and their impact on supply and demand.
Regional Dynamics: Diverse Market Conditions
Even though our team is based mainly in Orange & Los Angeles County area, we do spend a great amount of time to read up and provide some of our findings in other markets as well in order for us to make such educational comparison between our core market and others.
While the preceding predictions centered around the national housing market, it is important to acknowledge that real estate is heavily influenced by local factors as well.
By examining regional dynamics, we are able to reveal the following insights:
- The Northeast region is expected to experience the most significant price growth during the summer, closely followed by the Midwest.
- The Southern market will display a mixed performance, with markets like Miami, Florida projected to continue growing while others, such as Austin, Texas, may face challenges.
- The Western region, which has undergone substantial price corrections, may witness certain markets rebounding. Cities like Salt Lake City, Utah; Los Angeles, California; and Denver, Colorado, have already shown signs of stabilization, whereas Boise, Idaho, and Las Vegas, Nevada, continue to exhibit vulnerability.
Important Key Factors to Monitor
Although the aforementioned predictions present a base case scenario, several influential factors may shape and potentially deviate from these forecasts. The following elements should be closely monitored:
- Geopolitical Turmoil: The existence of geopolitical tensions, particularly with nations like Russia and China, introduces an element of unpredictability into the economy. The repercussions of international conflicts are difficult to ascertain without a clear understanding of the nature and severity of the situation. Therefore, it is important to acknowledge that significant international events can potentially disrupt housing market predictions.
- U.S. Debt Default: Perhaps, this is indeed the hottest topic for all the news outlet this week and the rest of the summer. The ongoing stalemate concerning the debt ceiling negotiations holds the potential for a U.S. debt default. If this unprecedented event occurs, mortgage rates would inevitably surge, potentially exceeding 8%. The subsequent impact on the housing market would likely align with the downside case scenario, albeit with uncertain implications once rates normalize.
- Labor Market Resilience: Despite rising interest rates, the labor market has demonstrated remarkable strength, with historically low unemployment rates (~3.6% average) across various metrics. The stability of the labor market is a significant determinant of housing market performance. A notable increase in unemployment rates could potentially lead to a recession, potentially affecting mortgage rates and housing market conditions. However, if unemployment rises to a critical threshold (6-7%), it may have a negative impact on the market.
At the end, our predictions and analysis are only great given what we currently know at the moment. With many moving pieces and discussions that are just started or not yet finalized, of course there won’t be any 100% accurate predictions.
My Personal Take
While the housing market’s future remains uncertain, examining key indicators and regional dynamics provides a foundation for informed decision-making. Hopefully, the fall season will offer an opportunity to evaluate the accuracy of these predictions and gain further insights into the housing market’s performance into 2024.
By staying abreast of market trends and external factors, our team here at Chad Vo Real Estate can navigate the dynamic real estate landscape with confidence to better serve our clients. For any further question, feel free to reach out to us at info@chadvorealestate.com.
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Source
Redfin
Fred Economic Data Source