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US home prices projected to grow ‘convincingly’ in 2024: Economist

Existing-home sales are expected to tumble to a 12-year low by the end of 2023, but they won’t stay that way for long, Realtor.com Chief Economist Danielle Hale recently predicted

Home prices are set to fall in 2023, according to Realtor.com’s chief economist. But they won’t stay that way for long.

Prices are set to drop by less than 1 percent this year, Realtor.com’s Danielle Hale told Yahoo Finance Live on Wednesday. But prices are set to steadily climb next year, led by higher demand in new homes, she said.

“We’ll start to see home prices rebound more convincingly in 2024,” Hale told Yahoo Finance Live.

Realtor.com had originally predicted home prices would grow by 5.4 percent in 2023. It has since revised its outlook to forecast a 0.6 percent decline, according to a mid-year housing update the site shared in late June.

“It’s too soon to say that we’re in a housing recovery,” Hale told the outlet. “I think today’s price weakness is something we’re going to end up seeing for the next several months.”

Sales prices are down nationally, but that’s largely been driven by price declines in the Western region, Realtor.com said.

Realtor.com has said the nation likely saw a new low in sales volume in January. Prices are likely hitting a high point for the year before Hale expects them to fall throughout 2023.

Hale expects existing home sales to hit 4.2 million this year, the lowest total since 2012.

“There’s a strong seasonal pattern in the housing market. We tend to see the highest prices of the year in the summer and the lowest prices of the year in fall and winter,” Hale said. “That trend is happening.”

Hale didn’t quantify how much of a “convincing” rebound home prices would make next year, but her forecast on price declines is largely in line with other economists who responded to a Zillow poll earlier this year. The experts said prices would fall by just under 2 percent this year before growing at an annual rate of 3.5 percent each year through 2027.

Home prices spiked in 2021 and part of 2022, according to the Case-Shiller Index of home prices. The typical house sold for $436,800 in the first quarter, up 35 percent from the start of the pandemic in 2020.

Source: Taylor Anderson | Inman.com

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Why this economist says today’s market is not a do-over of 2008

Now, although price growth through the pandemic period was clearly excessive, fundamentally speaking, the two periods cannot be considered to be similar at all

As has become tradition, this first episode of the year will be dedicated to my forecasts for the US housing market in 2023 so let’s get straight to it.

US home sales trended lower through all of 2022 and, although I believe that sales will still have held above five million, this certainly won’t be the case in 2023.

Affordability — and higher financing costs — will continue to act as headwinds when it comes to sales, but I think that the bigger issue will be that listing activity will not rise significantly as we move through the year.

As I have been saying for several months now, I just don’t see why many households who don’t have to move, will move and lose the historically low interest rate that they currently benefit from.

That said, sales will still occur this year but — at just 4.8 million — sales will be lower than we have seen since 2014.

Much has been said about the future of home prices, with some forecasters even suggesting that housing prices will collapse in a similar fashion to that seen following the bursting of the housing bubble back in 2008.

Now, although price growth through the pandemic period was clearly excessive, fundamentally speaking, the two periods cannot be considered to be similar at all.

It’s my opinion that sale prices in 2023 will be very modestly lower than last year and I certainly don’t expect to see a collapse in home values.

But not all markets are created equal. The pandemic created what has become known as “Zoom-Towns”. These were cheap markets that affluent buyers flocked to because of their newly found ability to work from home and this led sale prices there to soar.

And it’s these locations that will likely see prices fall more significantly.

Ultimately, expect to see prices fall through the first half of this year before starting to recover in the second half.

Looking now at the new construction market, housing starts fell last year as construction costs remained high and mortgage rates rose which lowered demand.  And I’m afraid that I do not see 2023 as being one where builders will deliver more inventory, with starts pulling back to a level the country hasn’t seen since 2016.

That said, I am expecting a recovery in 2024 when new home starts will break back above the 1,000,000 level.

New home sales in 2023 will fall further coming in below 600,000 but there is some light at the end of the tunnel with sales picking up fairly significantly again in 2024.

We all understand that the country has a significant undersupply of ownership housing, but the costs associated with building new homes is still making it remarkably hard for builders even though they understand that demand will be significant for at least the next decade and a half given current demographics.

But the problem they will continue to face is that demand will primarily come from entry-level buyers and, simply put, the cost to build a home precludes many developers from being able to meet this demand.

And finally, my forecast for mortgage rates in 2023.

Although this might not look good at all — as they say, “the devil’s in the details”.

Rates skyrocketed last year as the Fed stopped buying treasuries and mortgage-backed securities and, although they are off the highs we saw toward the end of last year, they are still significantly higher today than the market has become used to seeing.

As you can see here, I’m anticipating the average 30-year conventional rate to average 6.1 percent in 2023, but my forecast is actually a bit better than this shows.

You see, my quarterly forecast suggests that rates have actually already peaked, and that they will trend lower as we move through this year and break below 6 percent by the fourth quarter.

I would add that — if anything — my forecast may be a little pessimistic, and rates may end 2023 a little lower than I am showing here.

But that will depend on the Fed, and how long they will continue raising rates, and how long it will take before they start to lower them if the US enters a recession this year, which many forecasters — including myself — believe will be the case.

So, there you have it, my 2023 US housing forecast.

I will leave you with this one last thought.

2023 will be a transition year when the housing market will come off the “high” we saw during the pandemic and borrowing costs were artificially low.

I don’t see any reason for buyers or sellers to panic, though. By the end of 2023, most markets will have corrected themselves and I believe we will see prices — and demand — start to pick up again toward the end of this year, but at a far more normalized pace.

SOURCE: MATTHEW GARDNER / INMAN

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Fannie and Freddie get green light to buy $1M mortgages

The big run-up in home prices may have cooled, but the 2023 conforming loan limit will be increased by 12% to $727,200 in most parts of the country

Federal regulators gave mortgage giants Fannie Mae and Freddie Mac the green light to back mortgages of up to $726,200 in most parts of the country next year, and loans exceeding $1 million will be fair game in more than 100 higher-cost counties and Census areas where it’s hard to find homes for less.

The big run-up in home prices may have cooled for now, but the Federal Housing Finance Agency announced a 12 percent increase in Fannie and Freddie’s 2023 conforming loan limit Tuesday, based on home price gains through Sept. 30.

Under a formula mandated by Congress, the conforming loan limit is tied to annual increases in FHFA’s seasonally adjusted, expanded-data House Price Index. That index, also released Tuesday, showed home prices posted 12.4 percent annual gains during the third quarter.

“House prices were flat for the third quarter but continued to remain above levels from a year ago,” said FHFA economist William Doerner in a statement. “The rate of U.S. house price growth has substantially decelerated. This deceleration is widespread with about one-third of all states and metropolitan statistical areas registering annual growth below 10 percent.”

The $79,000 increase in the conforming loan limit will come as a relief to big lenders like Rocket Mortgage and United Wholesale Mortgage, which had already started pricing loans of up to $715,000 as conforming in September.

It’s also good news for many borrowers looking to take out loans that exceed the 2022 conforming loan limit, which is currently $647,200 in most parts of the country.

Because Fannie and Freddie can’t buy or guarantee “jumbo” mortgages that exceed that limit, jumbo mortgages tend to have stricter underwriting and higher down payment requirements, and some borrowers may also pay higher rates than they would for conforming loans.

While the new limits don’t take effect until Jan. 1, lenders can treat loans that exceed the current limit as conforming by holding them on their books for a few weeks until the increase becomes official.

Baseline conforming loan limit, 2000-2023

The rapid run-up in home prices during the pandemic drove an 18 percent increase in the 2022 conforming loan limit, the biggest leap in records dating to 1970. While this year’s increase isn’t as large, it pushes the conforming loan limit in some higher-cost markets above $1 million for the first time.

In higher-cost markets, Fannie and Freddie are allowed to purchase bigger mortgages based on a multiple of the median home value, up to a ceiling that’s equal to 150 percent of the baseline conforming loan limit. For 2022, the new ceiling loan limit for one-unit properties in high-cost areas will be $1,089,300.

The conforming loan limit will exceed $1 million in 105 counties and Census areas concentrated in nine metro areas where home prices are far above the national average. The conforming limit will also be higher than the $726,200 baseline but less than $1 million in 58 counties nationwide.

Jennifer Branchini, a San Francisco Bay Area Realtor who is president of the California Association of Realtors, welcomed the increase in the conforming loan limit. Nearly one out of every four homes sold in California this year between $1.25 million and $2 million were purchased by first-time homebuyers, Branchini said in a statement.

Last year’s big increase in the conforming loan limit fueled a debate over housing affordability and competition in the mortgage industry. Having Fannie and Freddie help finance purchases of $1 million homes complicates the Biden administration’s goals to help more low-income Americans become homebuyers and address racial homeownership gaps.

The Housing Policy Council, a trade association representing mortgage lenders and servicers, issued a statement Tuesday warning that “Crossing the million-dollar threshold should cause Congress, the Biden Administration, and all other stakeholders to actively consider how our housing finance system operates today.”

Fannie and Freddie’s “excessively high loan limits” exacerbate affordability issues, and limit the role of private capital in housing finance, the group said.

To help the mortgage giants focus on helping first-time homebuyers, low-income borrowers and underserved communities, last month federal regulators ordered Fannie and Freddie to slash upfront fees on many purchase loans. To offset the impact of those fee reductions, Fannie and Freddie will be required to charge higher fees for most cash-out refis starting Feb. 1, 2023.

FHFA had previously ordered Fannie and Freddie to increase fees on high-balance loans and loans used to purchase second homes. Those fee increases took effect on April 1.

SOURCE: MATT CARTER / INMAN

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Attention, Homebuyers: Circle This Date as the Very Best Time of the Year To Get a New House

While experts are throwing around phrases like “housing correction” and “slowdown in the real estate market,” things don’t seem much easier for homebuyers in the trenches right now. There still aren’t many homes for sale, and what is on the market is selling quickly—and often for more than the asking price.

Buyers looking for a break—and to save money on the purchase price of a home—should circle the week of Sept. 25 through Oct. 1 on their calendars. Realtor.com® has declared this the best week of the year nationally to purchase a property as there are traditionally about 8.4% more homes for sale. And in a big bonus for buyers, properties are usually priced an average of around $20,000 less than usual.

“The best time to purchase a home is the last week of September, because that’s historically when the market is most hospitable to buyers,” says Realtor.com economic data analyst Hannah Jones. “Typically, the early fall is when there are fewer buyers. There are also more homes on the market, and the housing market is generally calming down from the summer rush.”

To come up with our findings, Realtor.com looked at home list prices, the number of homes for sale, the number of new listings to go on the market, days on the market, views of properties on Realtor.com, and price reductions in 2018, 2019, and 2021. Analysts skipped 2020 due to the COVID-19 pandemic disruption.

The lack of inventory has created a nationwide housing crisis and pushed prices up to record highs. The median list price in August is $435,000—a 14% rise from the same month last year, according to Realtor.com data.

However, the frenzy in the market began dying down a little this spring as mortgage interest rates rose and the worst of the pandemic appeared to be over. Higher rates have served as a cap on prices, thinning out the pool of buyers and limiting just how high buyers are willing to go.
And now that school has started and parents aren’t desperately bidding on properties to get their families settled before classes begin, the market generally calms down even more as there is less competition.

“The market is rebalancing on top of these seasonal trends that we see every year because mortgage rates have grown. Increasingly, buyers are no longer able to keep up with price growth,” says Jones.

“We expect prices to come down more than is typical from peak,” adds Jones. “Price reductions will likely be higher than the typical year, and demand will likely be lower than the typical year.”
Despite the higher mortgage rates, the market is becoming more buyer-friendly. The number of homes for sale was up 87.3% in August compared with the beginning of the year, and even more properties are expected to go on the market in the coming weeks.

In addition, days on the market increased from an all-time low of 31 in May to a median 42 in August.

The exact week that’s the most favorable to buyers varies geographically. While the first full week of October is the most advantageous nationally, the week of Sept. 12–18 is best for those in the Boston, Denver, Detroit, Los Angeles, Minneapolis, New York City, and Portland, OR, metropolitan areas. The following week, Sept. 19–25 gets the nod for those in Austin, TX; Chicago; Memphis, TN; San Antonio, TX; and Washington, DC.

Last year, the best week to buy nationally was Oct. 3–9 and the best time to sell a home is April 10–16, according to Realtor.com.

“If price is your major priority, then wait a little bit and you’ll likely see lower prices into the fall,” says Jones. “If having a larger selection of homes to pick from is your priority, then buying a little earlier may benefit you as inventory tends to be a little higher in the early fall and then taper off toward the end of the year.”

Source: Clare Trapasso Realtor.com

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2022 HOUSING MARKET FORECAST REVISIONS

Housing market economists expected the market to change this year. But, it’s changing more than many expected at the start of 2022.

Inflation and mortgage rates both spiked faster than most experts predicted. Inflation reached a 9.1% hike in June and mortgage rates are well over 5%. With these drastic changes, economists are revising some of their forecasts for the second half of 2022. We break them down below.

INVENTORY

Realtor.com issued a mid-year forecast to align with the shifts that occurred in the first half of 2022. One of the most significant revisions made to its 2022 forecast was in the number of homes listed for sale. Its inventory projections increased from a 0.3% increase to 15% increase by the end of 2022.

“The biggest bright spot for home shoppers is that we expect to see more homes available for sale. We originally forecast…a very small uptick in inventory. We’re now expecting 15% growth in the number of homes available for sale.” Danielle Hale, Chief Economist, realtor.com

While this does bring relief to home buyers, total inventory is still lower than pre-pandemic levels. So, while there will be more options coming to the market, you will still need to help buyers move quickly and make strong offers.

HOME SALES

While inventory is expected to increase, the number of home sales is expected to slow down.

Fannie Mae also issued an updated 2022 forecast, lowering its projection for home sales, with increased mortgage rates being the main factor. It expects total home sales to decrease 13.5% to 5.96 million units sold. This is a shift from the projection Fannie Mae made in May, which was an 11.1% decline in home sales.

Realtor.com also expects home sales to slow, though not as much as Fannie Mae. Economists at realtor.com expect a 6.7% decline in home sales, which is a slight shift from their original projection of 6.6%.

Keep in mind that even with fewer home sales, a 6.7% decline (as projected by realtor.com) would keep the total number of home sales at the second highest number since 2007, second only to home sales in 2021. In short – there are still plenty of homes to be sold.

HOME PRICES

When buyers hear there will be more inventory and fewer home sales, they immediately think home prices will start to come down. But, that’s not what is expected.

Economists expect that home prices will continue to rise due to high buyer demand. Home appreciation is expected to slow when compared to 2020 and 2021, but most economists forecast appreciation in 2022 to land between 8-10%.

While experts predict the market will continue to calm for the second half of 2022, sellers will be happy to hear that the value of their homes is not going to plummet.

Source: BAM Staff – July 14, 2022

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Home prices grow 17% in June, the highest level since 1979: CoreLogic

The latest CoreLogic report found that home prices are continuing their record-breaking ascent, with detached properties appreciating the most

Even after a year of extremely high home price growth, June’s numbers broke all possible records. According to the latest numbers from property analytics provider CoreLogic, home prices rose 17.2 percent annually in June — the highest growth observed at any point since the late 1970s.

Such a high number (the 2.3 percent observed from May to June alone can equals annual growth in other years) reflects supply and demand pressures observed throughout the pandemic.

Low inventory coupled with historically low mortgage rates mean that far more people want to buy a home than what is actually available on the market. All-cash offers and bidding wars are being observed in cities where they were previously unheard of.

“Home prices have been rising in the mid-single digits for some years now. The recent surge to double-digit price jumps reflects the convergence of exceptional demand and persistent low supply,” Frank Martell, president and CEO of CoreLogic, said in a prepared statement. “With plenty of cash on the sidelines, along with very low mortgage rates, prices are heading up and affordability will become a more acute issue for the foreseeable future.”

Such high growth is stalling the market for both sellers and buyers, as even those who sell a home are often unable to find a new one that they can afford. First-time buyers without significant savings or family help for a down payment are in a particularly challenging situation.

At 19.1 percent growth, detached properties appreciated far faster than attached properties at 10.7 percent. The highest growth was in Twin Falls, Idaho, at 40.2 percent with Bend, Oregon, following close behind at 35.4 percent. Idaho and Arizona were the two states with the highest increases at 34.2 and 26.1 percent, respectively.

CoreLogic predicts that, as the low number of listings prevent many from buying and the market stalls, growth will also take a hit in the near future. Unlike with past bubbles, values are not expected to decrease but a slowdown is on the horizon — an increase of only 3.2 percent is predicted across the country by June 2022.

“The pandemic sparked an increase in buyer desire for lower density neighborhoods and more living space — both inside and outside their home,” Dr. Frank Nothaft, chief economist at CoreLogic, said in a prepared statement. “Communities with single-family detached houses fill this need. Detached homes had the highest annual growth in June since the inception of the CoreLogic Home Price Index in 1976.”

By: Veronika Bondarenko

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