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  • Writer's pictureTina Martin

What does your Crystal Ball tell you about the 2023 housing market?

Headline Personal Finance CNN – “Mortgage rates will fall to 4.5% in 2023? That’s the estimate from Fannie Mae.” Average rates are expected to be 4.7% and 4.4% in the first and fourth quarters, respectively. That’s extremely good news!

Fannie Mae is one of the biggest investors in mortgage backed securities in the Country. It’s their business to keep a watchful eye on how interest rates are expected to trend. It’s their business. And as we’ve all seen mortgage interest rates spiked up more than two percent based on actions the Federal Reserve took to increase borrowing costs to reduce inflation.

The take-a-way…consumers shouldn’t necessarily delay purchasing a home if they find an affordable home they like. In fact, most lenders offer a 2:1 Buy Down feature to help make homes more “immediately” affordable; and some lender will “credit” borrowers the cost to refinance to more attractive fixed rates. Call me (330-620-0219) to learn which lenders offer this program.

Let’s think about what really influences the real estate market:

1) It will always be an issue of supply and demand. So, the reduction in mortgage interest rates will spur demand. But the overarching concern will be inflation. What is “inflation?” It’s too many dollars chasing too few goods. And the Federal Reserve uses the Fed Funds Rate to increase the cost of borrowing to control the rate of inflation. As inflation goes up so do mortgage rates, and as inflation eases mortgage rates go down. Therefore, we need to keep our eye on the rate of inflation as measured by the CPI – Consumer Price Index.

Remember from economics that the CPI is a weighted average market basket of consumer goods and services purchased by households. But please be aware that there are two elements of CPI. There is the “headline” CPI rate that is published and the “core” CPI rate which adjust for food and energy prices. The core CPI has been about 6.3% year over year.

2) Because of inflation, experts estimate that rents will rise 13% on new leases and 8% on renewals. But home prices will experience low single-digit appreciation as the housing market reaches more of an equilibrium for buyers and sellers. This is what makes it a great time to buy a home.

3) The Yield on the 10-year T-Bill. The yield is inversely related to interest rates, meaning as yields go up, mortgage interest rates come down

4) Unemployment. If the level of unemployment increases it signals recession and mortgage interest rates should drop;

5) Household Formations: Gen-X represents 55 million people and Millennials represents 66 million people (total 121 million) potentially in the market for buying homes.

6) Equity in Homes stabilizes the market against a flood of foreclosures. In 2022 the average equity in homes was 58% of their value compared to 19% in 2008.

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