Winter is historically the quiet season in the housing market making this the time to start your hunt. Start shopping now to avoid the uptick in home prices and the return of competing offers for limited home inventory we are likely to see in the Spring and Summer months. Just how limited is housing inventory?
A recent article published in Housing Wire estimates a nationwide shortfall of 1.2 million entry-level homes by the end of 2022. Add to that a slowdown in new home starts as builders hesitate in the face of economic uncertainty heading into 2023 and you’ve built your case to shop sooner than later.
The incoming storm is the wave of buyers who realize home prices are NOT going to plummet, mortgage rates aren’t returning to 3% and find themselves competing once again as the supply of homes is desperately lagging demand.
As we close out the year, here are some market highlights:
- sixty-four percent of homes sold in October 2022 were on the market for less than a month (source NAR)
- the median home price in the West was $588,400, a 5.3% increase from October 2021
- nationwide housing supply estimate is 1.25 million single-family homes. Ideal supply hovers at 2M to 2.5M
- with demand for homes far outstripping supply, significant home price declines would defy basic economics
- mortgage rates hover in the 6’s on most programs down from a high of 7%+ in October
- conforming loan limits officially boost buying power by 12% in 2023
- programs to create affordability for low income and first-time buyers make qualifying easier
How Much Home Can You Buy Under the New Limits
In response to accelerated home price appreciation, conforming loan limits increase to $729,400 for 2023 up from $647,200.
Mortgage Rate Forecast
The Mortgage Bankers Association (MBA) expects the average 30-year fixed mortgage rate to continue drifting down. Their latest forecast has mortgage rates finishing this year at 6.7% with an anticipated steady decline toward 5.2% sometime in 2023.
The Fed Promised More Rate Hikes Yet Mortgage Rates Forecast to Trend Down
Thirty year mortgage rates do not directly follow the Fed rate actions. The Federal Open Market Committee (FOMC) or the Fed as they are referred to, sets the short-term lending rate used by banks. The Fed funds rate directly impacts short-term lending like home equity lines of credit but does not dictate longer term rates like 30-year fixed mortgages.
Projected additional rate hikes by the Fed could have a positive impact on mortgage rates by keeping inflation under control. Mortgage rates follow Core CPI as we are currently witnessing. That’s how 30-year mortgage rates are declining as the Fed continues incremental hikes. The chart below recaps inflation data and offers insight into why November brought lower mortgage rates. After consecutive months of steep upward momentum, inflation is finally calming.
Our article, Rates are on the Move…Will Home Prices Follow, offers a complete summary of mortgage rates and their relationship to inflation. There are exceptions to “the rule” like we experienced during the pandemic as monetary policy is a complex puzzle.
Get Pre-Qualified and Get Shopping
Ask questions as you roll through these very important decision milestones associated with buying a first home or making a move. Here’s what you should expect from your lender:
- Pre-qualification – high level estimate of how much home you can afford, and which programs might offer the best terms.
- Pre-approval – when you’re ready to make an offer, you must have a pre-approval.
- a seller will not accept a prequalification.
- an underwritten pre-approval confirms exactly what rate a borrower qualifies for as of “today” and the fees associated with the program of choice, guaranteed not to change.
- a borrower’s rate cannot be “locked in” until the property is under contract. If anyone tells you differently, they are not being honest with you.
- Seek options and get creative to reduce your monthly payments knowing rates are slowly trending down.
- utilize a seller sponsored 2-1 rate buydown offering 2% below current rates year one, 1% in year two. A refinance opportunity is likely around the corner.
- Non-occupant co-borrower programs allow borrowers to qualify by including an additional income source that doesn’t live in the home with you.
- Partner with a realtor versed in the area and price range you’re shopping or selling in. Home value is tightly coupled with location and a experienced realtor will be able to point out pros and cons by geography and ensure your desired property’s pricing is consistent with values.
by Sheila Landis for The Landis Group
