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Has the housing market slowdown passed?

Thu Feb 9, 2023 on Florida Real Estate

Has the housing market slowdown passed?

While mortgage rates are still well above the 3% range from a year ago, the average 30 year home loan rate has fallen a full percentage point for the high 7% in November, bringing new buyers into the housing market. In fact, mortgage applications are up reportedly by a quarter since the end of last year, and Redfin reports that the number of people contacting real estate agents to start buying homes has rebounded from a November low.

As we all know, the housing market is a measure of how the economy is doing. Stocks and bonds have rebounded on the premise that inflation is coming down. While the Fed is still committed to keep mortgage rates high until inflation is lower, some economists believe that the worst of the housing downturn has passed.

What are the indicators that the housing downturn has turned a corner?

D.R. Horton Inc., for one, the largest U.S. home builder by volume indicated that there has been heightened sales since the beginning of this year, and that they expect sales to increase with spring sales as traditionally spring brings more activity in the housing market as families move before a new school year.

Buyers themselves seem to have adjusted to higher rates from a year ago, understanding that while their monthly housing costs may be higher, they may be able to refinance later. Home buyers understand that high mortgage rates are not necessarily forever, and therefore have a different mindset in choosing homes allowing for a monthly spend that they know will change once they refinance.

Homebuilders themselves are also offering incentives to sell finished homes. One such incentive is offering mortgages which rates temporarily lowered for the first few years.

Even pending home sales, which is a leading indicator of the housing market, rose 2.5% in December, according to the National Association of Realtors.  Further, mortgage rate locks jumped 64% between the first and last weeks of January, the biggest increase in five years according to mortgage provider Black Knight Inc.

What still needs to happen in the residential real estate market?

Buying a home may have become a little more affordable recently due to lowering mortgage rates from 7.08% in early November to the current 6.15% for a 30 year fixed mortgage. While mortgage rates still are high from where we were just a year ago, rates are moving towards the historical average of the past 50 years. On the other hand home prices are still elevated with fewer sellers placing their homes in the market. As a result, questions of affordability still remain as there are more buyers seeking homes.

What does this all mean?

The housing market is tied into how long it takes the Federal Reserve to control inflation. Higher rates and still high purchase prices effect affordability. However, the good news is that with the recent lowering of mortgage rates, the bond market acting favorably and stocks on the rebound homebuyers have shown a change of mindset and are willing to endure a higher monthly mortgage payment with the anticipation that they will be able to refinance down the road.

Roy Oppenheim

From The Trenches

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