My friend Jeff Taylor, CEO of Mphasis Digital Risk and a Mortgage Bankers Association board member, just shared a few key housing market predictions with Business Insider (BI). Below I recap those predictions, and what they mean for home buyers and sellers in 2023.
Let’s start with market predictions.
With the Fed still hiking rates in 2023 to fight inflation, Jeff tells BI:
– The Fed may hike 2 more times at their upcoming 2023 rate policy meetings (the next 3 of which are March 22, May 3, and June 14).
– National home prices may drop 4-6%, and some especially hot pandemic-era markets might see 7-9% decreases.
– Total funded mortgage volume for 2023 may end up at $1.5 trillion to $11.6 trillion.
Now, let’s look at how home buyers and sellers can navigate the market this year.
– If the U.S. mortgage market did fund $1.5 trillion in 2023, that would be a 33% decline from 2022 funded mortgage volume of $2.25 trillion.
– This is a hard number to peg because the Fed is “data dependent” and will change course if inflation continues to decline.
– Remember the first couple months of last year the Fed wasn’t raising rates at all then turned on a dime and started hiking rates March 15? The same thing might happen in reverse. If this does happen, mortgage rates would drop and volumes would rise — and 2023 could end up closer to the 29 year average of $2 trillion per year in mortgage fundings.
– But mortgage units — total deals funded — are easier for home buyers and sellers to understand, and the MBA predicts 3.4 million mortgages for home purchases in 2023.
– So if you’re one of those 3.4 million people will buy a home with financing this year, what’s your approach?
– First, Jeff is right about different markets having different price declines. You must get with your realtor to look at home price trends at the neighborhood, street, and home levels in your target area.
– A media headline will never tell you what you can make an offer for. That’s a local ground game.
– Second, Jeff notes buyers can make aggressive offers to what you can afford. This means you can make low offers on target homes once you’ve been pre-approved by a lender and know what you can afford.
– I agree with this strategy. There’s no downside to making offers below asking price. If you’re pre-approved and can write an offer that’ll close fast with no surprises for the seller, the only way for the seller to make peace with a declining market is for them to look at offers.
– And if your offer is lower than they wanted, but it’s a clean deal that’ll close fast, you’d be surprised how many sellers will accept those offers. This is market cycle 101 dealmaking.
– Third, any seller that’s been in their house for more than a few years won’t get killed in this market.
– Why? Because home prices rose 41% from January to the pandemic peak prices. And even with recent home price declines, Black Knight data show homeowners still gained $3.51 trillion in tappable equity from January 2020 to the end of 2022.
– This means sellers can accept lower offers and still walk with plenty of cash. And while their psychology might be that they don’t want to sell below a certain price, choosing a listing price to sell, and accepting an offer price their home will actually sell for are quite different.
– As noted above, the only way to find out if a seller will accept your lower offer is to make the offer.
– And the only way to know what kind of offer to make is to study your target area’s pricing with a realtor and to get pre-approved by a lender to see what you can afford.
– Then you can find a deal on your dream home. A declining but not crashing market is the best time to do this. And that’s the market we’re in now.
Please comment or reach out with questions.