Do Realtors Know Something You Don't?

Current Market Conditions

The correction is over.  We know–great news for sellers planning to list in the next year, but bad news for all the buyers waiting for prices to slide further.

Most experts believe that the time of price correction has passed even though transaction volume remains lower, due to lingering fears over inflation, recession, and potential for future interest rate increase.  They point to the persistence of high home prices despite mortgage originations down, rates nearing 7%, and a very real shortage of homes..  

According to the U.S. Department of Housing and Urban Development (HUD), sales of new homes have risen by 20% year-on-year (validating high demand), while inventory of existing homes remained at just a three-month supply (a low level for a balanced market).  Analysis reported by Zillow suggests the country needs an additional 4.3 million homes.

Meanwhile, after spiking in the first week of June, mortgage rates steadied for the rest of the month, the result of the Federal Reserve's decision to hold the federal funds rate, ending a 15-month stretch of rate hikes to control inflation. Despite this, high mortgage rates persist and the federal funds rate (nearly at zero in March 2022) is currently at 5.08%.

The Crystal Ball

Experts expect the recovery to continue slowly, as mortgage rates neared 7% on July 13. Given that over 90% of borrowers currently hold mortgages with rates under 6%, and approximately 82% of homeowners have rates below 5%, a significant increase in mortgage applications isn't likely to happen soon.

According to Freddie Mac, only $344 billion in mortgage originations were reported in the first quarter of 2023, marking the lowest since 2014.  Moving forward, the market's recovery is likely to be slow and challenging, with higher mortgage rates, inflated home prices, and a shortage of available housing.  National home prices rose at a seasonally adjusted rate of 0.7% between March and April and 3.1% from a year ago, culminating in the FHFA House Price Index (HPI).  

Many economists foresee the housing market growth slowing to a moderate pace after years of double-digit percentage leaps in home prices.  It is hard to imagine a housing crash due to the persistence and ubiquity of the ongoing inventory squeeze.  

Our Advice

It is important for buyers and sellers to thoroughly educate themselves about current market  conditions in specific regions as they consider entering this competitive market. Working with a knowledgeable realtor you trust provides a significant advantage. Sellers need to work closely with their agents to price homes appropriately, as overpriced homes tend to remain on the market while those priced correctly tend to attract competition. 

The importance of this strategy cannot be overstated, and Sellers should also prioritize enhancing their homes' physical (and online) appeal, since virtual tools increase visibility on the market, garnering more views, saves, and increased desirability.