Guaranteed Rate Affinity
Return to normal, or a new normal, this fall?
With September approaching quickly, we’re entering the final quarter of 2023. This has been a fascinating, and some may say, frustrating year in the housing market, as high rates and low inventory have prevented the market from gaining any traction. At least so far.
At first, it was when would buyers be able to attend open houses after COVID restrictions were lifted.
Then it was a question of when mortgage rates would start to come back up from their record lows driven by economic policy designed to help offset the effects of lockdown.
And now the question centers on the prices and availability of homes for sale—when will home prices come down, and when will we have enough available inventory?
Moreover, as we get ready for fall, here’s another question: has the housing market returned to its normal seasonal patterns?
In most years, the housing market cools along with the weather, with fall home sales traditionally coming in slower than activity in the spring and summer. However, with home sales sluggish over the last six months, the market may be ready to pick up this fall. As we head into the fall, let’s take a look at what factors will shape the housing market this season.
First and foremost, are mortgage rates trending up or down?
The first thing that everyone wants to know seems to always be: will mortgage rates come down? Unfortunately, this is always the hardest trendline to predict.
However, here’s a piece of advice if you want to know what’s going on with mortgage rates—keep an eye on inflation.
As the Federal Reserve has increased its federal funds rate over the last year in order to bring inflation back down to its 2% goal, mortgage rates have gone higher and higher. But with news coming out in July that inflation reached 3%, down from a high above 9% in July of 2022, it gave hope that the Fed may slow their rate hikes as they get closer to their goal.
But during their July meeting, the Fed hiked interest rates by another .25% to a level between 5.25% and 5.5%. This is the highest that it’s been in 22 years. They also hinted that they may raise rates at their next meeting.
If the Fed were to pause rate hikes at their next meeting in September, we may see mortgage rates come down. In the meantime, it’s important to work with an expert lender who will monitor all the major and minor factors that affect mortgage rates. He or she will be able to tell you when you should lock a rate and when you should wait.
Another critical consideration is how high are home prices?
Home prices have been rising through the summer, with the national median existing-home price coming in above $400,000 for just the fourth time ever in July. Historically, when mortgage rates have gone up, home prices have gone down. However, there is such a lack of homes for sale right now, that prices have stayed high even in the face of higher rates.
However, national home prices were down year-over-year in May, dropping 1.0% from the high in 2022. This could mean that home prices, which shot up so quickly during the pandemic, may be starting to cool off. It’d be good for homes to keep adding value, but not so quickly that a large portion of potential homebuyers can’t afford to keep up.
Higher home prices are good news for homeowners, generally, but bad news for buyers. But most people who are interested in selling their home also have to buy their next home, so it’s not as great a benefit for them as it appears at first.
As we enter fall and temperatures start to drop, the question becomes will home prices start to drop as well. There’s good news for homebuyers, as home prices tend to follow the same seasonal pattern—prices start to go up in the spring before peaking in the summer, then fall back down through the fall and winter. Just look at the 12 months between June 2022, when national median prices reached their all-time high, and June 2023.
|Month||Median existing-home price||Month-over-month change|
Just as home prices followed the established pattern of declining last fall, there’s no reason to believe that they won’t again this fall. So while the fall isn’t often considered a great time to buy a home, it may be perfect for homebuyers who are looking for a deal. Especially if mortgage rates come down.
Anticipating Home Availability
How many homes will actually be available?
The number of homes for sale, known as housing inventory, has been an issue since before the pandemic. The number of new homes being built has been on a downswing ever since the housing crisis of 2008. At that point, there were too many homes on the market, forcing the value of all homes down. After that crisis subsided, construction companies slowed down their projects to avoid similar problems.
However, over the last few years, when mortgage rates were at all-time lows, the pace of home purchases ramped up, and the supply of homes dwindled. A low supply continues to be the case now, even with higher rates, as there just aren’t enough homes on the market. Some economists are saying that our current housing market is short by millions of homes.
The homeowners who purchased or refinanced when rates were low are reluctant now to move and give up that great rate, further exacerbating the inventory problem. In addition, more and more single-family homes are being used as rental properties. But there is good news on the housing inventory front.
New construction is finally starting to warm up to meet this challenge. In May, new housing starts jumped up by 18.7% from April. New home permitting is also up. Home builders see both the housing inventory problem and the prospect of making money, as well. It will be good news if this trend of new construction continues into the fall and beyond, as it takes a while for a home to be built.
And homebuyers are taking notice, as well. More homebuyers are considering newly built homes over the last few months, rising from 20% to 25% over the last three months, while they are giving up on the existing home market, with their interest dropping from 39% to 36%. This trend will likely continue, as there aren’t enough existing homes to satisfy the demand.
Lawrence Yun, chief economist at the national Association of Realtors® estimates that we currently have around a 3-month supply of available homes but considers a 6-month supply an indicator of a healthy housing market. “There are simply not enough homes for sale,” Yun notes. “The market can easily absorb a doubling of inventory.”
Evaluating the Overall Home Sales Landscape
Home sales overall
Housing experts didn’t predict a robust year for home sales, and they have been downgrading their predictions more and more as the year has gone on. “The second half of the year is shaping up to be fairly boring with very little prospect of sales shifting up or down through the rest of the year,” says Taylor Marr, deputy chief economist at digital brokerage Redfin.
The Expert Guidance for the Fall Housing Market
Work with an expert
Most of what’s going to happen in the fall housing market all comes down to what’s going on with mortgage rates. If they come down, there may be more buying activity. That’s why it’s so important to work with an expert loan officer. They’ll help you understand what’s happening with rates and when you should lock in a good rate.
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