Every real estate professional has felt the weight of the economic downturn and it’s hard to overstate just how much the statistics of a 10th consecutive month of decline in existing-home sales are likely to exacerbate this situation. According to recent reports from The National Association of Realtors, existing-home sales have plunged by 37 percent compared to last year’s numbers, creating far more uncertainty and hardship for realtors, lenders, home builders, and mortgage brokers across the country. Amidst a housing market in crisis, real estate professionals are struggling to make ends meet and stay afloat as home sales continue to fall. Unfortunately, the future looks bleak without any real signs of recovery in home sales on the horizon.
Inflation, Inventory & Interest Rates Are Causing Decline?
With the housing market showing signs of strain due to changes in inventory, inflation, and interest rates, understanding the cause of this decline in sales is vital. Out of these factors, skyrocketing inflation is hurting homeowners the most by sending interest rates even higher. The Federal Reserve has been raising the federal funds rate at an unprecedented rate to combat its effects, increasing borrowing costs and forcing lenders to become more strict with mortgage offers. Inventory also remains low due to a housing shortage, especially affordable housing in many markets. As such, real estate professionals must stay continually updated on current market trends to keep up with all of these drastic changes.
Unprecedented Increase In Mortgage Rates In 2022
Mortgage rates soared in 2022, doubling from 3% to an astonishing 6.5% according to Freddie Mac. This marked the first time in history that mortgage rates have ever doubled over the course of one year, leaving many wondering what caused such a sudden spike in borrowing costs. It’s believed that further inflation due to higher federal government spending played a large part in spiking interest rates -in fact, annual inflation reached its highest point in 40 years this past year. In response to the out-of-control inflation, the Federal Reserve raised the fed funds rate from about .25% at the beginning of the year to 4.25% by December. Yet another unprecedented step for policymakers who had hoped to soften the blow of rising inflation.
We Will See More Layoffs in 2023
With the economy slowing down due to high-interest rates, many can expect to see more layoffs in 2023. This is impacting the real estate industry hard, with sales figures decreasing by 37%. And for many professionals in the sector, a decrease in income or even layoffs are being experienced. It’s not just real estate though – banks, high-tech industries, and mortgage brokers appear to be feeling the hit too. Layoffs have a ‘trickle-down’ effect on the real estate industry and many other industries. This extended slowdown shows no signs of stopping soon. “Goldman Sachs recently announced major layoffs, demonstrating that it’s likely that no industry is safe in this current environment of increased interest rates,” says John Myers, Owner of Myers & Myers Real Estate.
Mortgage Rates will Continue to Increase in 2023
The future of mortgage rates is difficult to predict. Increasing mortgage rates in 2023 are just one of the many predicted outcomes. The Federal Reserve has made statements many times that the federal funds rate will continue to rise. This will undoubtedly have a direct impact on home mortgage rates. Though there will be drops in interest at some point in the future, it is difficult to accurately predict when these decreases will take place. Financial experts remain divided on the issue. Some hold that mortgage rates ought to stay steady or drop slightly, while others predict inflation will cause a spike in rates due to rising energy costs. The latter opinion seems more likely since inflation did decrease recently due mainly to lower energy prices. However, it is likely energy prices will increase this spring and push inflation back up with it. Ultimately, we will have to wait and see how all of these events unfold over the next year.
All Real Estate Markets Are Local
Real estate prices are heavily impacted by the local economy and housing market. National events like inflation and high-interest rates will certainly impact all housing markets. This concept is on full display with current housing data, where homes for sale in Albuquerque New Mexico have seen the median home price decline by 6% since its peak in May 2022, while comparable markets like Austin Texas, and Miami Florida have seen losses of 14% and 5%, respectively. Real estate prices vary greatly between locations, so it is important to stay up to date on what is happening locally. While some experts make predictions of a housing price crash for 2023, most experts do not predict a crash in housing prices. It remains to be seen how these shifts in real estate markets will affect particular areas.
