Get ready for an influx of buyers in the market in the first quarter of 2023. According to Barry Habib, real estate mortgage expert and CEO of MBS Highway, mortgage rates will hit around 5% and maybe even lower by March. This will trigger pent up demand and an avalanche of transactions as people that have been waiting on the sidelines enter the market.
Here’s what you need to know:
- Inflation drives mortgage rates. When inflation goes up, mortgage rates go up – and vice versa. The Fed’s actions have continued to slow economic activity, and will in turn slow inflation, and following that, mortgage rates will go down. By March, Habib projects we should see mortgage rates coming down to the 5% mark or perhaps just below. While the 3% rate is still a thing of the past, these spring rates will be a very good time for many buyers to jump back in.
- Why spring? Spring has traditionally been the most popular time for people to transition into a new home and relates to the timing of the new school year. Expect to see more homes on the market in April, May and June than we have seen in some time, as buyers want to be settled and in their homes by June, July and August.
- 30-year mortgage rates follow the 10-year Treasury note. Look at how this has tracked over the past 35 years and you will see the relationship and how inter-related these two are. They do not directly follow Fed rate changes, however we do feel the effects later on as the economy changes.
- Consumer price index or CPI is currently at 6.3% YOY. By watching the CPI we can also know early on, months in advance, how the rates will change. Again this shows CPI will start coming down in March. This means meaning mortgage rates will start coming down faster.
- Inflation will also come down due to lower prices on goods, sparked by a very full supply chain. We have already seen retailers drop prices and by early next year they will have to do more to get people to buy.
- Housing inventory is still very low. Remember, in 2006 there was just too much supply. This is still nowhere near the case today. Houses that are on the market are still not enough for the demand! Currently the US has 1.2M homes on the market and 750,000 in active inventory (less those in contract), that is half the normal. NE Florida is around 7,000 when 9,000 is what we see for a stable market when it is buyer/seller balanced.
- Home values are up 49% and equity is still strong. They dropped 0.1% after a 50% rise, so are still up 49%. Foreclosures not going to happen due to the amount of equity in homes and of course the level of inventory.
- Affordability is strong. Average incomes are up 9% overall, so despite food and energy costs going up, overall costs are offset.
- Investors are in the market. One out of six transactions are investment properties. Investors too have pent up demand as many put investments on pause during the height of market pricing last year. In 2023, rents will be up 8% per year, making long term rentals an attractive opportunity for investors.
- Important negotiation tactics: Popping up everywhere now is the Rate Buy Down. This is a way to avoid a price reduction and saves the buyer far more than a price reduction would. You can expect to hear about this no matter if you are buying or selling. The seller simply buys the rate down either for a short period, or permanently, for the 30 year loan. An example of this is the seller buying the rate down from 6.5% to 4.5%, which equates to $10K towards closing costs, saving the buyer $500 per month for two years, assuming the house is $500K and they are putting a minimum amount down. Refinance next year to get a lower rate.
The opportunity in real estate is around the corner. No matter if you’re selling, buying or investing 2023 is looking bright.
Source: Barry Habib, MBS Highway, December 2022
