In the world of real estate, the saying “location, location, location” has been replaced by a new focus: mortgage rates, mortgage rates, mortgage rates. Since the Federal Reserve began raising interest rates to combat inflation, the impact on homebuyers and the market has been significant. Higher rates have reduced affordability and demand, and homeowners have delayed selling due to their existing low mortgage rates.
These higher rates have caused a ripple effect, dampening affordability and demand. But here’s the twist: homeowners are holding off on selling because they feel tied to their low mortgage rates. This fascinating dynamic raises important questions about the state of home values and what lies ahead in the ever-evolving real estate landscape.
But fear not, for we have gathered key indicators that paint a vivid picture of the current market and its potential trajectory. Let’s embark on this thrilling journey together!
HOME SALES ARE SET TO REVITALIZE BY EARLY NEXT YEAR
In the realm of real estate, spring and summer ignite a fiery passion for home buying. However, this year kicked off with a slower pace, witnessing declines in March and April. Existing home sales dipped by 3.4% from the previous month and a staggering 23.2% from the previous year. What’s behind this market slowdown? Experts attribute it to near-record home prices, elevated mortgage rates, and limited inventory.
According to Lawrence Yun, Chief Economist of the National Association of Realtors (NAR), home sales are resilient but highly sensitive to mortgage rate changes. Interestingly, multiple offers on starter homes have become increasingly common, signaling a need for more supply to meet the growing demand. It’s truly a unique housing market.
But here’s the exciting part: Industry experts anticipate a market resurgence. The Mortgage Bankers Association (MBA) predicts a temporary decline in home sales until Q3, followed by a bounce back in Q4 and beyond. Fannie Mae analysts believe the recovery will take a bit longer, with a positive upswing projected for early 2024.
Adding to the buzz, home builder confidence is already soaring high. March and April witnessed a surge in purchases of new single-family homes, reaching a remarkable 13-month peak. Builders are even sweetening the deal with enticing incentives, as 54% of them reported using these perks to win over budget-conscious buyers in May.
What does this mean for you? Buyers, rejoice! The slower sales pace grants you some breathing room to find your dream home. If the frenzy of the pandemic-era market left you feeling overwhelmed, now is the opportune moment to explore your options. We’re here to guide you every step of the way, ensuring you make an informed purchase.
For sellers, it’s essential to brace for fewer footfalls and a more extended sales timeline compared to a year ago. But fear not, with the expertise of a skilled agent who knows how to captivate buyers, your home will shine amidst the competition. Reach out to us for a copy of our multi-step Property Marketing Plan and let’s embark on a successful selling journey.
PROPERTY VALUES STAY RESILIENT AMIDST FLUCTUATIONS
Good news awaits buyers as median prices for both new and existing homes experience a decline. The median price for new houses dropped by 8.2% compared to the previous year, while existing-home prices saw a 1.7% decrease. Notably, while some regions witnessed rising prices, others in the South and West saw a decline.
Approximately half of the country is enjoying price gains, igniting multiple-offer scenarios during the spring buying season. The calmer winter market paved the way for these exciting opportunities, with distressed and forced property sales nearly non-existent.
Although prices remain about 40% higher than early 2020 on a national level, experts anticipate a modest decline of 1% to 1.5% by the end of the year. Doug Duncan, senior vice president and chief economist at Fannie Mae, assures us that home prices will remain a solid investment, especially for those who have owned a home for more than a year or two. The rock-solid equity will help stabilize the sector and prevent a wave of foreclosures.
Rest assured, affordability will be restored, paving the way for the next generation of homeowners. This journey is crucial for the financial well-being of households, communities, and the broader economy. Mark Zandi, chief economist at Moody’s Analytics, beautifully captures the essence of this evolution in The Washington Post.
What does this mean for you? Buyers, it’s your chance to snag deals in segments where prices have softened. Motivated sellers are ready to make enticing offers, and we’ll be by your side to help you secure your dream home at a great price.
For homeowners, while the surge in home values has slowed, your equity is still a valuable asset. Reach out to us for a complimentary assessment of your home’s current worth. It’s time to harness your equity and explore new possibilities.
LIMITED INVENTORY, BUT A RISE IN NEW CONSTRUCTION
Hold onto your hats as we navigate the challenges of limited inventory in the market. Unsold existing home inventory increased by 7.2% from March to April, according to NAR. However, the current level of demand translates to a meager 2.9 months of supply, far below the balanced market standard of 5 to 6 months. So, why does inventory remain tight despite the market slowdown? The answer lies in the reluctance of many potential sellers to let go of their enviable low mortgage rates.
Affordability poses challenges not only for first-time buyers but also for repeat buyers who still need to secure a mortgage, as highlighted by Danielle Hale, chief economist for Realtor.com. In a recent survey, a staggering 82% of respondents planning to buy and sell homes expressed feeling “locked in” by their low rates.
But fear not, for there is a glimmer of hope on the horizon. New home construction has stepped up to bridge the supply gap. Currently, one-third of housing inventory consists of new construction, surpassing historical norms of around 10%. Robert Dietz, Chief Economist of the National Association of Home Builders, points to the promising trend.
Moreover, the momentum in new construction continues to build. After experiencing a slowdown last year, single-family housing starts rose by 1.6% from March to April (seasonally adjusted), reaching a seven-month high for new construction permits.
What does this mean for you? Buyers, while inventory remains tight, fear not! Less competition means more opportunities and increased negotiation power. If your previous search for a home left you empty-handed, it’s time to rekindle your quest. We’re here to assist you in exploring both new and existing homes in our vibrant area.
Sellers, rejoice in the reduced competition for now. However, keep in mind that as time goes on, more sellers will likely join the market, intensifying the competition. If you feel tied to your current low mortgage rate, consider this: Rolling your equity gains into a down payment for your next home could potentially lower your monthly payments. Let’s have a conversation about your options and strategize for your successful selling journey.
ANTICIPATING THE TIDES OF MORTGAGE RATES
Hold onto your hats as we dive into the captivating realm of mortgage rates. According to Freddie Mac, the average 30-year fixed-rate mortgage reached its peak at 7.08% in the fourth quarter of 2022 and has been hovering between 6% and 7% since then. However, there are whispers of rates trending lower later this year.
Lawrence Yun predicts calmer inflation will pave the way for lower mortgage rates, with a likely dip below 6% by the end of the year. Echoing his sentiments, Fannie Mae’s May forecast suggests a continued decline, projecting an average of 6.0% in Q4 2023 and 5.4% by Q4 2024 for 30-year fixed mortgage rates. The Mortgage Bankers Association (MBA) even goes a step further, anticipating rates averaging 5.6% by Q4 2023 and 4.8% by Q4 2024.
A glimmer of hope appeared on May 3 when the Federal Reserve raised its benchmark borrowing rate by a quarter point, marking the 10th consecutive increase since March 2022. However, the absence of language about “additional policy firming” in their statement left analysts speculating whether the rate hikes may be coming to an end.
While mortgage rates aren’t directly tied to the federal funds rate, a potential pause in rate increases by the Fed could have a positive impact. Brace yourselves, buyers, and be prepared to shop around multiple lenders to secure the best rate. It’s time to buckle up for the exhilarating roller coaster ride that awaits.
What does this mean for you? Buyers, rejoice in the possibility of lower mortgage rates, which will enhance your purchasing power. However, be mindful that decreased rates may correspond to increased competition and prices. Start your search now, and when the opportune moment arrives, you’ll be ready to make a compelling offer. We’re here to guide you and help you secure a fantastic deal, complete with potential seller incentives.
For sellers, this news is cause for celebration as well. However, it’s crucial to consider multiple factors when determining the right time to list your home. Reach out to us for a consultation, and together, we’ll chart the best course of action.
WE’RE HERE TO BE YOUR NAVIGATORS
As we navigate the vast ocean of real estate, it’s important to remember that national forecasts provide a “big picture” outlook. However, real estate is inherently local, and as seasoned experts in the Chicago market, we are your trusted guides. We possess an in-depth understanding of the intricacies that impact sales and drive home values in your specific neighborhood.
If you’re contemplating buying or selling a home, don’t hesitate to contact us for a free consultation. Together, we’ll develop a tailored action plan to help you achieve your real estate goals. Let us be your unwavering support as we embark on this exciting journey together.
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