Economic, Housing and Mortgage Market Outlook December 2023

Table Of Content

• Is it smart to buy real estate before a recession?
• For-Sale Inventory is Expected to Increase:
• National Housing & Economic Forecast 2023 Mid-year Update: Despite Easing Home Prices, Costs Remain High
• Investors purchases dropped at a record rate
• 15% of active listings experienced price drops
• Housing Perspectives:

Another possible albeit less likely scenario is that prices will stay mostly flat on a year-over-year basis in 2023. That could occur if mortgage rates and/or new listings fall faster than expected, which would prop prices up. But if inflation remains stubborn, rates stay higher than expected, and/or supply increases more than expected, prices could fall by double digits.

Is it smart to buy real estate before a recession?

As borrowing conditions ease, more buyers will come back to the market, which should lure sellers back as well, notes Marr, who is already seeing an uptick in inventory. The California median home price is forecast to rise 6.2 percent to $860,300 in 2024, following a projected 1.5 percent dip to $810,000 in 2023 from $822,300 in 2022. A persistent housing shortage and a competitive housing market will continue to put upward pressure on home prices next year. Realtor.com®’s model-based forecast uses data on the housing market and overall economy to estimate 2023 values for these variables for the 100 largest U.S. metropolitan statistical areas by population size. These markets are then ranked by combined forecasted growth in home prices and sales.

For-Sale Inventory is Expected to Increase:

Analysts don’t anticipate a downturn to growth in property value over time, situating L.A. As a continuing opportunity for property investors in general in addition to its current hot rental property market. According to the Association For International Real Estate Investors (AFIRE), real estate in LA was one of the fastest ways to realize appreciation of capital as recently as last year.

National Housing & Economic Forecast 2023 Mid-year Update: Despite Easing Home Prices, Costs Remain High

But if inflation proves stubborn, rates are more likely to stay elevated for several months and decline slowly before ending the year just below 6%. That’s fewer home sales than any year since 2011, when the U.S. was reeling from the subprime mortgage crisis, and a 30% decline from 2021 during the pandemic homebuying boom. It would also lead to the lowest housing-turnover rate since the early 1980s, with just 32 out of every 1,000 households selling their home in 2023. The majority of median sales prices across California decreased between 2022 and 2023. These are the recent median sold price readings from the California Association of Realtors (CAR) for existing single-family home real estate transactions. Several metro areas are in the early stages of transitioning from a seller’s market to a neutral setting—though homes remain expensive for most buyers.

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For the better part of two years lenders haven’t been allowed to foreclose on distressed owners, but assistance is coming to an end. With the pandemic hopefully giving way to a reopening, overdue homeowners will be expected to come current on payments. As a data journalist at Redfin, Dana Anderson writes about the numbers behind real estate trends.

Rent prices remained historically high but stopped short of new record

Since then, mortgage rates have increased from the historical lows to 23-year highs. While rates have come down since the end of October, they remain well above the 4% rates that nearly 60% of existing homeowners are currently locked into. With higher rates, the incentive for existing homeowners to list their property and move to a new house has greatly diminished, leaving them rate locked. Increasing rental supply and declining prices–along with high mortgage rates, limited inventory and other affordability barriers–mean few renters will become buyers next year. Many prospective first-time homebuyers may instead become move-up renters, upgrading from a small urban apartment to a larger apartment or a single-family rental to fit their growing families.

15% of active listings experienced price drops

In March, it predicted Fed rate cuts could begin as soon as the summer, with mortgage rates staying above 6.5% through the second quarter then drifting lower in the latter half of the year. While inventory would still be tight, “more first-time homebuyers continue to flood the housing market” and push home prices up. In the meantime, Los Angeles real estate market trends point to an exodus from the city. With more and more people working from home, there’s no longer a need for many people to live within proximity to their offices.

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housing trends that defined the year, including record mortgage rates, depleted inventory, and dwindling home sales

Michael Gorkowski, a Virginia-based real estate agent with Compass, is also trying to figure out how to manage the potential ruling. Moreover, the National Association of Realtors agreed to a monumental $418 million settlement on March 15 following a verdict favoring home sellers in a class action lawsuit. Still subject to court approval, the settlement requires changes to broker commissions that will upend the buying and selling model that has been in place for years. In 2023, homes spent an average of 37 days on the market, a full ten days more than 2022. This was in stark contrast to the past two years, which went from sudden growth during the pandemic to a free-fall in the second half of 2022.

Housing Perspectives:

2022, the share of sales with a VA loan was 9.4% in the top 10 markets vs. 7.5% in the top 100 markets among mortgaged-purchases. In El Paso, TX (24.2%) and Augusta-Richmond, GA-SC (23.0%), the share of sales with a VA loan was three times more than the top-100 average. A higher share with VA loans is also seen in Columbia, SC (14.5%), nearly twice as high as the top-100 average. Similarly, home sales with a FHA loan was 13.7% in the Top 10 markets vs. 11.8% in the top 100 markets. El Paso, TX (17.3%)  saw the highest share of FHA sales among the top 10 markets, followed by Augusta-Richmond, GA-SC (16.0%), Columbia, SC (15.8%), and Hartford-West Hartford et al., CT (15.4%).

If for nothing else, deals with attractive profit margins are harder to come by in today’s market. Subsequently, months of cash flow are entirely capable of offsetting today’s higher prices. Under the right circumstances, it is entirely possible to justify higher acquisition costs with years of historic rental returns. The resulting demand should serve as a rising tide for every well-positioned rental property owner in LA.

Specifically, rental demand may be stronger in urban areas within big metros, a departure from both recent trends and what is expected in the for-sale market. In addition, rising housing costs, stemming from a twenty-year high mortgage rate and slowing new construction, may keep many potential homebuyers in the rental market longer and thus fuel the already high rental demand. In fact, among recent renters surveyed, only a third (32.3%) indicated that they are considering buying a home within the next 12 months. One silver lining for renters is that despite slowing single-family construction, builders have generally ramped up the construction of multi-family units that are typically rental homes.

Supply and demand simultaneously drove people away from buying and towards renting. The cost of renting increased nearly ten percent over the course of last year, and it’ll probably continue to rise as more people are turned away from buying in 2022. This recent rate lock-in effect surge explains the low supply of existing homes for sale on the market which has pushed existing home sales to 13-year lows. Even if you can afford today’s high rates and prices, a lack of inventory is restricting the options available. Over the last three years, the supply of homes, whether new or existing, also dropped to record lows as seen in both homeowner and rental vacancy rates which tumbled to or near long-term lows.

The median sale price for a home in Detroit was $173,450 in 2023, down 2.7% year over year. Even though prices fell in 2023, homes in Detroit are more expensive than they were before the pandemic, as an influx of people searching for affordability have pushed up prices. The spring homebuying season never happened, housing inventory remained historically low throughout the year, and sales plummeted.

Given the roller-coaster ride inventory has been on lately, it’s important to keep historical context in mind. The level of inventory in 2023 is expected to fall roughly 15% short of the 2019 average. In fact October 2022 was the first time that inventory climbed back to its 2020 level for the same time of year. The major question on the minds of homeowners and aspiring buyers alike is what will happen to home prices.