March was … brutal for the U.S. economy and the financial sector. Despite promising key economics factors such as growth in wages and continuously strong labor market, with short-live of the Dream for All program to the sudden collapse of Silicon Valley Bank, the uncertainty level of many homebuyers climb higher as these events hinted either we are already in a recession or we are slowly heading toward the bottom of one.
Unlike the previous years, it looks like the Spring season for home shopping may cool down this year. With that being said, here’s a few major updates for the month of March heading to April.
Mortgage application volume shows slight improvement!
According to the Mortgage Bankers Association’s (MBA) Market Composite Index, the 30-year fixed-rate mortgage averaged 6.32% as of March 30th, which is the lowest within the previous 6 weeks. As the result, the mortgage application volume increased by 2.9% (reported on March 24th) for both home purchases and refinancing. Additionally in California specifically, the launch of the Dream for All loan program kick started mid-March also helped contribute to this increase. As home prices in most markets accelerate significantly slower comparing to the past couple years, buyers’ purchasing power is recovering and the buyers market will return soon. However, we shall hope that inventory this Spring season would stop shrinking due to sellers willing to hold off.
Despite a dip in the average rate and promising growth in the mortgage space, Silicon Valley Bank (SVB) suddenly failed mid-March, which caused not only a major scare in the financial sector but also in the tech industry as well since thousands of start-ups and tech companies hold their funds at SVB. Subsequently, many companies had to implement reduction in headcounts the following weeks or even days after the event due to the loss of funds in SVB. Could this be considered the same beginning of the financial crisis in 2008/2009? Possibly. Therefore, we hope that we will be wrong but we forecast the mortgage application and housing activities will decrease in the Spring season this year as the result of a shaky financial sector.
Number of home listings shrank as economics uncertainty got worse
As of beginning of April, new listings across all regions and markets dropped by nearly half (47.3%) comparing to the same time of last year, which is a bit concerning since the beginning of the 2nd quarter or Spring season, the trend of new inventory typically trends up. For the fifth consecutive month, the REALTORS® ‘s survey on average indicated that sellers are willing to hold back from selling simply because the net profit is not comparable comparing to the previous years and they are not ready to let go of the low interest rate just yet!
House prices are falling in the West and rising in the East
Who doesn’t like a good and affordable deal right? For the homebuyers that can be flexible with where they want to live, they may be in luck.
According to many real estate reports from Black Knight, as the result of an ongoing battle against inflation, home prices were reported to trend down slowly in many major metro markets from the West including (but not limited to) San Jose, California (10.5%), San Francisco (10.3%), Seattle, Washington (7.5%). On the other hands, if you plan to move toward the East side, you may want to reconsider or to hurry to make a move since home prices rose 12.% in Miami, 9.3% in Orlando, and 8.3% in Buffalo.
It’s relatively understandable as the low interest rates from the past couple years have fueled the competitive and hot markets and driven the prices up skyrocketed. Perhaps, we have reached a (temporary) ceiling of home prices in the West?
But what’s the point of going house-hunting when sellers are not… selling?
With many contributing factors, this Spring Home-buying season is at risk to be below average comparing to historical trend due to a big gap between buyers and sellers expectations. As a homeowner myself, I completely understand the concern over missed opportunity cost that many sellers fear for several reasons (same ones I’ve been mentioning to clients and in this article):
- As we are in the Buyer’s Market already (if not, we’re in the transition phrase), sellers will no longer see big profit margin since the qualifying buyers pool is shrinking due to high mortgage rate. Hence, sellers most likely will not receive many competitive offers in most markets
- After being sellers, at one point, everyone will either become renters or buyers again. This is true for most cases! And as sellers, do they really want to leave the once in a lifetime low interest rate just to go back to high 6% rate again? “Interest rates are likely to remain elevated for some time, even if they do not rise much further,” senior U.S economist at Pantheon Macroeconomics, Kieran Clancy, stated in a research note Wednesday. Perhaps, until there’s a significant dip in interest rate again, we won’t know when the seller markets will return again.
My Personal Take
The first quarter of 2023, in my opinion, did not end in a very good note. I mean, we all anticipated that it would be a tough fiscal year but most of us did not see many recent events would happen.
Yes, it is indeed a lot of things going on for most to process simply because we are all either directly or indirectly affected by these negative outcomes. Unless your purchasing power comes from straight up cash or you are under some special circumstances that require you to purchase a home as soon as possible or you are capable of finding a major good deal, I’m still advocating for taking an extremely calculated risk to pursue a home purchase at the moment.
For us here at Chad Vo Real Estate, we’ve been very fortunate to have many recent opportunities to work with great real estate investors with great wisdoms. And it’s time like this that we’re blessed to learn from each other and share these updates with the rest of our audiences. For more questions, comments, concerns, feel free to reach out to our team at info@chadvorealestate.com
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