Limited Supply is Keeping Home Prices At A Standstill


As Q3 2023 nears closure, this is the time of year economists revise their original forecasts for the current year and make their predictions for the upcoming year and beyond. released This Week in Real Estate that a panel of more than 100 economists and housing analysts surveyed by Pulsenomics in March expected home values to fall about 2 percent year-over-year by the end of 2023. When surveyed again in August, the panel predicted prices would rise 3.3 percent this year instead. “Short of a flood in supply, it’s hard to bring these prices down,” said Diane Swonk, chief economist at KPMG. Active listings in August were 7.9 percent lower than a year ago and down 46 percent from August 2019. Homes sold in July received an average of three offers, according to the National Association of Realtors. The overall theme is even in a market where affordability is a significant obstacle for many would be buyers, the supply just is not there to meet demand thus propping up home values. Below are a few newsworthy events from the first week of September that influence our business: 

Home Equity Increases from Winter to Spring. CoreLogic released its Homeowner Equity Report (HER) for the second quarter of 2023 Thursday, which saw home equity decrease by 1.7% year-over-year, however, U.S. homeowners with mortgages (roughly 63% of all properties) gained on average $13,900 quarter-over-quarter, amounting to a collective increase of $806 billion – or a 5.2% gain – in home equity. “While U.S. home equity is now lower than its peak in the second quarter of 2022, owners are in a better position than they were six months ago, when prices bottomed out,” said Selma Hepp, chief economist for CoreLogic. “The 5% overall increase in home prices since February means that the average U.S. homeowner has gained almost $14,000 compared with the previous quarter, a significant improvement for borrowers who bought when prices peaked in the spring of 2022.” Read the full story here.

Expert Home Price Forecasts Revised Up for 2023. Toward the end of last year, there were a number of headlines saying home prices were going to fall substantially in 2023. That led to a lot of fear and questions about whether there was going to be a repeat of the housing crash that happened back in 2008. But the headlines got it wrong. While there was a slight home price correction after the sky-high price appreciation during the ‘unicorn’ years, nationally, home prices didn’t come crashing down. If anything, prices were a lot more resilient than many people expected. The original forecast of the Mortgage Bankers Association, Fannie Mae, Morgan Stanley, and Wells Fargo were decreases of 0.6%, 1.5%, 4.0% and 5.5%, respectively. Their current revised forecasts are 0.0%, increase of 3.9%, 0.0% and increase of 2.2%, respectively. For home prices, you’re going to continue to see misleading media coverage in the months ahead. That’s because there’s seasonality to home price appreciation and they’re going to misunderstand that. Here’s what you need to know to get ahead of the next round of negative headlines. As activity in the housing market slows at the end of this year (as it typically does each year), home price growth will slow too. But, this doesn’t mean prices are falling – it’s just that they’re not increasing as quickly as they were when the market was in the peak homebuying season. Basically, deceleration of appreciation is not the same thing as home prices depreciating. Read the full story here.

Housing Market Predictions: The Forecast for the Next 5 Years. There are plenty of predictions about where the housing market is going as we move toward 2024. But what about further out? Mortgage interest rates could continue to increase, says Lawrence Yun, NAR’s chief economist, adding that 7 percent could be the general level for the rest of this year and most of 2024. Within two years, he says, the rate should return to 5.5 or 6 percent. Because rates are high, Yun foresees a greater interest in adjustable-rate mortgages through next year. However, after that, he predicts 90 percent of Americans will return to the traditional 30-year fixed-rate mortgage. Yun foresees no major changes in purchase price tags on a nationwide level next year, with fluctuations of only about 5 percent one way or the other. Overall, in five years, Yun expects prices to have appreciated a total of 15 – 25 percent. While it may show bubble-like characteristics, Yun does not expect the residential real estate market to pop. He does predict that sales will be at a low point next year, with only 5.3 million units sold, but he foresees a gradual increase afterward, up to an annual 6 million units by 2027. Despite today’s higher mortgage rates, home prices are still strong, he adds. Even if they decline 5 percent next year, that’s not anywhere close to crashing, which he says is characterized by a one-third drop. “A crash happens with oversupply,” Yun says. “A 30 percent decrease will not happen because there isn’t enough inventory.” Yun expects the overall seller’s market to continue as long as housing inventory remains low. By five years out, though, he foresees more of a balanced market, where neither the buyer or seller holds a significant advantage. Instead, the negotiating power between parties will be more equal and depend on the individual case. Read the full story here.

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