Housing Market Insights End of 2022

Pattern has been consistent.

Homes sales down and home prices still higher Y/Y with home prices coming down M/M.

Per YCharts Oct 31, 2022:

US Existing Home Median Sales Price are at $379.1k down 1.15% from last month ($383.5k) and up 6.58% from last year ($355.7k).

Rising rates undoubtedly soften the real estate market but at what rate? It appears inventory is still low for prices to come down that quickly. With many locking in at very low rates, they may be reluctant to sell. It appears home values could very well be “lower” than purchase prices near term with some regional areas exhibiting that phenomenon already.

Nationally, mortgage rates were up 386 basis points from one year ago (one percentage point equals 100 basis points) from 3.12 to 6.98%. That will have a strong effect on inventory, sales and prices.

Compared to one year ago, the monthly mortgage payment rose to $2,044 from $1,242, an increase of 64.6%. Compared to a year ago, the monthly mortgage payment increased by $802. The annual mortgage payment as a percentage of income increased to 27.4% this October from 17.4% a year ago.

Last week, the Mortgage Bankers Association released data showing that Mortgage applications decreased by 1.9 percent from one week earlier. Mortgage rates are leaning toward 7%, and mortgage payments have continued to climb. Home prices have fallen. However, the other factors in qualifying for a home have become more challenging to overcome for potential home buyers.

Per Realtor.com:

The national inventory of active listings increased by 46.8% over last year, increasing more than 13 percentage points over the previous month, the largest month-over-month increase in this growth rate since May 2022 when inventory first saw a positive annual growth rate.

The total inventory of unsold homes, including pending listings, increased by just 3.0% year-over-year due to a decline in pending inventory (-35.6%).

Sellers are less active than last year, as newly listed homes declined by 17.2% on a year-over-year basis.

The median list price grew by 11.0% in November and is decelerating from higher growth rates in recent months.

Time on market was 56 days, 8 days more than last year but 18 days less than typical pre-pandemic levels.

November 2022 housing data shows a cooling housing market, with rising inventory levels, fewer pending listings, a slower pace of sales and slowing price growth.

Keeping an eye on inventory levels is key: The inventory of homes for sale has surpassed 2020-levels but continues to fall short of pre-pandemic levels in all regions except for the West, where inventory may reach 2019-levels as soon as next month.

The total number of unsold homes nationwide increased by only 3.0% year-over-year. That is a very SLOW rate to trigger big price drops near term.

Home Listings Are Spending More Time on the Market.

DOTM (days on the market) is now 8 days more than last November.

The “COVID hotbeds” such as Phoenix and Raleigh are among the metros which are seeing the greatest slowdowns in time on the market and largest increases in active inventory.

Median listing price is still UP 11% in November 2022 compared to last year per Realtor.com. They have the median at $415,750.

Price Reduced Share is UP 10.4% Y/Y from last Nov.

Homebuilder sentiment falls as buyer demand wavers.

Homes cost MORE with inflation and rising rates.

Can we have a “soft landing” with housing?

Housing Market Forecast Into 2023

Many insiders believe that neither home prices nor interest rates will improve significantly in 2023. A correction is underway but it is very slow-going. Mortgage rates are still more than double what they were the 1st week of 2022 and home prices are more than 6% higher than a year ago, making it much more difficult for “would-be” buyers to access affordable housing.

Total existing home sales dropped 5.9% from September to October making it the 9th consecutive month of declining sales. Buyers are being priced out of qualifying for mortgages. However, mortgage rates have come down from peaking in mid-November so home sales may be close to reaching the bottom in the housing cycle. (hopefully)

Things CAN turn around soon.

Housing Inventory Predictions for 2023

Low housing inventory has been a challenge since the 2008 housing crash when the construction of new homes dropped significantly. It hasn’t ever fully recovered.

Housing supply that remains near historic lows has held up demand compared to other downturns, consequently sustaining higher home prices. Currently, inventory levels are still tight and some homes are still receiving multiple offers.

At the current sales pace, inventory is at a 3.3-month supply, according to NAR. This is about half of what is preferred. There is still pent-up demand based on demographic trends.

Housing inventory is up slightly from 3.1 months in September and 2.4 months from a year ago.

Furthermore, the ongoing slowdown in new construction is squeezing the already limited housing supply as single family construction starts and applications for building permits in October were down from previous month.

Will the Market Crash?

There are mixed signals on whether the market will crash or just correct itself from double digit % rises seen in home prices the past year.

Some markets may continue to rise but nationally they are estimating about a 5% drop.

Compared to 2008, homeowners stand on much more secure foundation nowadays so a housing crash likelihood is very low. Homeowner equity is at the highest level it has been in the past several decades as well. Mortgage products are less risky overall with a lot more regulations and restrictions in the mortgage market that make it a lot stronger (less volatile and risky) than it was in 2008.

A housing market crash usually sees a 20-30% drop in home prices and decline in sales far more than what is occurring. There has also not been a jump in foreclosure activity which is a telltale sign of a crash. Foreclosure activity is about half of normal levels and we may return to normal levels in mid-2023 depending on the “recession.” Ultimately, people have more equity in their homes.

Most likely a cooling rather than a crash.