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More Reasons for Optimism in the Housing Market

Women with confeti

The real estate market has been historically slow since the Covid-era boom of 2020 and 2021. With that said, there’s good reason for optimism moving forward in 2024.

Corner of house

Existing home sales look to have hit the bottom, home builders are optimistic about the future, and single-family construction appears to be on the up-tick!

December’s Existing Home Sales Likely at “Bottom”

Home sales and construction slumped in December, but buyers and builders have reasons to be optimistic about the housing market this year.

Existing Home Sales fell 1% from November to December to a 3.78-million-unit annualized pace. That comes in below estimates of an unchanged reading per the National Association of REALTORS® (NAR). Sales were also 6.2% lower than they were in December 2022.

What’s the bottom line? This report measured closings on existing homes in December and likely reflects people shopping for homes in October and November, when rates peaked.

Existing home sales graphic

On that note, the National Association of Realtors Chief Economist, Lawrence Yun, said, “The latest month’s sales look to be the bottom before inevitably turning higher in the new year. Mortgage rates are meaningfully lower compared to just two months ago, and more inventory is expected to appear on the market in upcoming months.”

More supply is certainly needed, as there were just 1 million homes available for sale at the end of December. This was down from 1.13 million at the end of November, and below healthy levels at just a 3.2 months’ supply of homes at the current sales pace.

Home Builders Optimistic About 2024

Confidence among home builders rose for the second straight month in January as falling mortgage rates have encouraged some buyers to resume their home search.

The National Association of Home Builders (NAHB) Housing Market Index climbed seven points to 44. While this is still in contraction territory below the key breakeven level of 50, the reversal marks a positive sign heading into the spring buying season.

Home Builder Sentiment graphic

All three index components moved higher this month. Current sales conditions rose seven points to 48, while future sales expectations surged twelve points to 57, moving into positive territory for the first time since August. Buyer traffic was also up five points to 29. 

What’s the bottom line? NAHB Chair Alicia Huey noted that, “Lower interest rates improved housing affordability conditions this past month, bringing some buyers back into the market.” Plus, 31% of builders surveyed reported that they’re still reducing prices to encourage sales, providing even more opportunities for buyers right now.

“Solid Showing” for Single-family Construction

Housing Starts fell for the first time in four months in December, down 4.3% from November.

While single-family Starts also saw a downtick from November, they still had a “solid showing” per the NAHB as they surpassed the million mark (1.027 million) for the second straight month. This reflects the number of single-family homes that would be built throughout the year if construction took place at the same rate in every month as it did in December.

Building Permits, which are an indication of future construction, were up 1.9% from November to December, with permits for single-family homes reaching their highest level in a year.

New Home Construction Graphic

What’s the bottom line? “Mortgage rates steadily fell below 7% in December, and lower rates combined with a lack of existing inventory in most markets helped to keep single-family production above a one million-unit annual pace,” explained NAHB Chair Alicia Huey.

“And the fact that our latest surveys showed a big increase in builder confidence is an indicator that we can expect housing starts to improve in the coming months.”

A boost in supply will be welcome news for buyers around the country who have struggled with low inventory, though there is still a long way to go to meet the level of demand that exists among buyers.

House with sale sign

When we consider the pace of completed homes that will be coming to market (around 1.57 million homes annualized) and subtract roughly 100,000 homes that need to be replaced every year due to aging, we’re well below demand as measured by household formations that are trending at 1.9 million.

More demand than supply will continue to be supportive of home values, especially when we reach the busier spring homebuying season.

Do reach out to me for more information, as it would be my pleasure to help you in any way I can!

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The blog postings on this site represent the positions, strategies or opinions of the author and do not necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates. Each loan is subject to underwriter final approval. All information, loan programs, interest rates, terms and conditions are subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deductions.

The Lending Coach 2024 Mortgage and Real Estate Forecast

2024 Forecast graphic

My 2024 real estate and mortgage rate forecast centers specifically around supply and demand…of both real estate and mortgage backed securities. As we know, all prices are determined by supply and demand. 

Right now, housing supply is relatively low, and demand is growing – and that means home price appreciation.

On the mortgage side, will interest rates finally come back?

Hourglass and house

Well, inflation is the biggest driver of interest rates…and that seems to be finally coming down to manageable levels – and this should lead to lower rates moving forward!

Let’s take a look at the factors that will impact mortgage rates and real estate in 2024…

Inflation

The single biggest driver of bond yields AND mortgage rates is inflation.

roll of american dollar banknotes tightened with band

Mortgage rates are essentially driven by inflation, which erodes the buying power of the fixed return that a mortgage holder receives.  When inflation rises, lenders demand a higher interest rate to offset the more rapid erosion of that buying power.

When the Fed hikes rates, they are trying to slow the economy and curb inflation. If successful in cooling inflation, mortgage rates will decline. 

History proves this during rate hike cycles for the past 50 years, per the slide below.  Unfortunately, this isn’t an overnight fix.

Rates and Recession graphic
Jerome Powell

Essentially, the Federal Reserve bungled their management of inflation in 2020 and 2021 and were forced to make severe changes to offset the damage.  This brings market instability and increased mortgage rates.

Fortunately, inflation does seem to be coming down (and that’s primarily why rates are better today than they were in October of 2023.  And the news on the horizon looks promising.

It looks like core inflation might be in the 2% range by the middle of this year, which bodes very well for lower mortgage rates:

Inflation-Fed Cut graphic

The trend in inflation is working in the borrower’s favor, and it means the Fed’s going to have to look at cutting the Federal Funds rate in 2024.

You can find out more on inflation, The Federal Reserve, and mortgage rates here…

The Fed and Rate Cuts

The Fed said they’re going to start cutting before we get to 2% core inflation. I think there’s a good probability March 20th, we’ll get the first Fed rate cut, and certainly by May 1st.

Now, what does the market say on this?

Well, there’s odds-makers. Just like if you were to go take a look on DraftKings and see what the odds are on a football game, well, there’s odds-makers on what the Fed will do as well.

Fed Cut Graphic

As you can see above, the chances are pretty much assured that by May we’ll get that first rate cut.

Dollar signs graphic

In fact, there’s pretty good odds that we’ll have multiple rate cuts by May and June.

Per the chart above, there’s a 56% chance of at least 50 basis points cumulatively and by June there’s a 53% chance, better than 50-50, that you will have three 25 basis point cuts by June 12th.

Now something that’s also very important to watch is the Fed’s balance sheet. The supply of mortgage-backed securities has been hurting rates through most of 2023 because the Fed reducing its balance sheet.

They had their balance sheet go up during the great financial crisis and it got up much higher during the COVID crisis to a point of $8.5 trillion. That was just too much buying on behalf of the Fed.

Balance Sheet graphic

The chart above shows their outright holdings of treasuries and mortgage-backed securities and they’ve offloaded $1.4 trillion over the last 18 months or so. That’s been a big driver in mortgage rates…and rates started to rise because the market had to absorb all of these securities.

But recently interest rates have improved and that is because the expectation for lower rates is causing banks to be aggressively buying treasuries and locking the higher rates in anticipation that rates go lower.

So, let’s take a look at what the Fed might be comfortable with on their balance sheet.  That will be critical, because the Fed is going to slow down or eventually stop that runoff and stop that added supply of treasuries and mortgage-backed securities on the market.                

Balance sheet breakdown

As we go through each month, you can see that as we get into March, right before the March 20th meeting from the Fed, it will most likely be below 25%. I believe that’s too high of a number for the Fed to be comfortable and they’d like it to be lower.

Coins forming house

When you start to see what happens the second half of the year, you get to a level that the Fed is much more comfortable with and I believe that the Fed will stop their quantitative tightening and reverse course. 

The Fed’s balance sheet will be a critical component because less supply on the market means that interest rates should improve because the buyers will be bidding on fewer amount of paper or supply that’s available.

Mortgage Rate Forecast

So what’s the mortgage rate forecast for 2024?

Well, for 2024, I see 30-year fixed rate mortgages in the mid-fives (later in the year) to high-six range (early in the year).  Under 6% rate on mortgages should unlock move of buyers and create more activity.

The 10-year Treasury will fluctuate between 3% and 4.4%, as we are starting the year a little above 4%. I believe that the overall trend, while it might move up and down a little bit, will be to gravitate towards 3%, which is good news for mortgage rates.

2024 Forecast graphic

And maybe we get a more normal return to the spreads between Treasuries and mortgage rates, which is around 2%, not 3%. So that should help mortgage rates reduce as well.

Real Estate Forecast

Let’s turn our attention to real estate.

The forecast for real estate centers again on supply and demand, and the supply is tight. Look at inventory over the last 10 years, how it continues to decline while our population goes up:

Real Estate forecast graphic
Real Estate forecast graphic 2

Demand is continuing to be very, very strong. The blue lines represent households being formed.

As you can see, there are far more households being formed than builders putting up homes. This is why the real estate market’s been so strong of late and why you we seeing prices increase due to a lack of inventory. It’s going to be a similar story for 2024.

We won’t see much more inventory, although we will see more activity.  But, we don’t see the amount of supply coming to market in order to meet that demand. So that’s why prices should stay firm.

Appreciation forecast graphic

I’m forecasting between 4.5% and 5% home appreciation nationwide.

But, perhaps even a greater importance while we have a very solid real estate valuation market, is that overall real estate transactions should rise by 15% to 20% in 2024. Good news for the economy in general, for sure.

In Conclusion

It’s looking like 2024 should be a much better year for real estate!  Do reach out to me to discuss how you might be able to move forward in 2024 to take advantage of this changing market!

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The blog postings on this site represent the positions, strategies or opinions of the author and do not necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates. Each loan is subject to underwriter final approval. All information, loan programs, interest rates, terms and conditions are subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deductions.

Why Pausing Your Home Search Might Not Be a Good Idea

Contract with pause button

For those who have been shopping for a home recently, you’ve likely confronted more than a few challenges along the way.

High mortgage interest rates and rising home prices cut into affordability, pushing many would-be buyers to the sidelines. Secondly, a lack of housing inventory is only making matters worse.

woman with credit card pondering while buying online with laptop

Due to these conditions, some buyers have decided to pause their home purchasing plans on hold, at least temporarily. But is that such a good idea?

You can find out more from Erik Martin’s article at The Mortgage Reports here…

Temporarily stopping your home buying search might seem like a reasonable decision in certain situations, such as a volatile real estate market or personal financial uncertainty.

However, there are several compelling reasons why hitting the pause button on your home buying journey might not be the best move.

Ever-Changing Market

The real estate market is dynamic and ever-changing. Pausing your search could mean missing out on potential opportunities.

Market conditions can shift quickly, and a property that fits your criteria perfectly may become available during your hiatus.

In today’s market, for example, home prices are continuing to rise due to lower supply and higher demand. So, if buyers choose to wait, it’s a guarantee that they will pay more for a home in the future.

By staying active in your search, you can capitalize on favorable market conditions and secure a property that aligns with your needs and preferences.

Long-Term Hold

House on notebook

Moreover, real estate is a long-term investment that tends to appreciate over time. This is especially true if borrowers are looking to keep the property for an extended period of time, versus flipping it quickly.

By delaying a purchase, would-be buyers could potentially miss out on the appreciation of property values in their desired area.

This could limit their ability to build equity and wealth through homeownership. Over the years, the property they had their eye on might become out of reach due to escalating prices.

Interest Rates

Yes, interest rates are at much higher levels than they were 2+ years ago, but most experts agree that waiting for rates to come down before making a purchase is a risky strategy.  Timing the market is always a very difficult task.

Percent signs

When rates do drop, many believe that there will be renewed interest and added demand in the real estate market…which means prices will rise at a faster pace than today.

By waiting, you might end up paying more for the same property when interest rates inevitably drop.  Remember, borrowers can always refinance when rates go down, so Marry the House but Date the Rate’!

In Conclusion

While pausing your home buying search might seem like a cautious approach, it comes with potential drawbacks that could impact your financial well-being and future prospects.

The real estate market’s volatility, fluctuating interest rates, and the potential appreciation of property values all underscore the importance of staying active in your pursuit of homeownership.

By maintaining a proactive stance, you position yourself to make informed decisions that align with your goals and aspirations.

Please reach out to me for more so we can strategize about the right options for you!

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Utilizing Existing Home Equity to Purchase Investment Property or a Second Home

House and hands

Home ownership can provide a valuable asset in the form of home equity, which represents the difference between a property’s market value and the outstanding mortgage balance.

close up photo of banknotes under a calculator

Leveraging home equity to invest in real estate has become an attractive option for many seeking to build wealth and diversify their financial portfolio.

Let’s take a look at the benefits and risks associated with using home equity to purchase an investment property or a second home.

Advantages of Using Home Equity for Investment

One of the primary advantages of using home equity to buy an investment property is the potential for higher returns on investment compared to traditional savings or investment options.

person with keys for real estate

Real estate properties, when well-selected, have the potential to appreciate over time, leading to substantial gains for the investor. Additionally, rental income from the investment property can provide a steady source of cash flow, which can be used to pay down the mortgage or fund other investments.

Moreover, utilizing home equity allows investors to take advantage of relatively lower interest rates, which can significantly reduce borrowing costs compared to other types of loans.

Building Wealth and Diversification

Investing in real estate with home equity can be an effective strategy for building long-term wealth and diversifying one’s investment portfolio.

Real estate has historically shown a strong track record of long-term appreciation, offering a hedge against inflation and economic downturns. By diversifying investments across various asset classes, individuals can reduce their overall risk exposure and increase the potential for steady returns.

Home equity, when deployed wisely into real estate, can help individuals achieve financial security and achieve their long-term financial goals.

Risks and Considerations

Patio with fan

While using home equity to purchase an investment property can be financially rewarding, it does come with some inherent risks.

The most significant risk is the potential decline in property values, which could leave the investor with a property worth less than the outstanding mortgage balance. Although rare, unexpected changes in the local real estate market can impact property values. You can find out more about the historical appreciation of real estate here…

Moreover, if rental income from the investment property falls short of expectations, the investor may face difficulties meeting mortgage payments, leading to financial strain.

Therefore, it is crucial for investors to conduct thorough research and due diligence before proceeding with this strategy.

Responsible Borrowing and Financial Discipline

To minimize the risks associated with using home equity, responsible borrowing and financial discipline are essential.

Calculator

Investors must carefully assess their ability to handle increased debt and maintain adequate reserves to cover unforeseen expenses or periods of vacancy. Furthermore, they should consider setting up separate accounts to manage rental income, property-related expenses, and mortgage payments to maintain financial transparency and accountability.

Moreover, keeping a strong credit score is crucial to ensure access to favorable financing terms and interest rates.

In Conclusion

Using home equity to purchase an investment property can be a prudent financial decision when approached with caution and foresight.

Puzzle with cash

The potential for higher returns, coupled with the diversification benefits, can be appealing to investors seeking to grow their wealth. However, it is essential to be mindful of the inherent risks and practice responsible financial management.

Thorough research, careful planning, and ongoing monitoring are vital to the success of this investment strategy.

By making informed decisions and maintaining financial discipline, individuals can leverage their home equity to create a pathway towards financial prosperity and stability. 

Please contact me to discuss your current situation and how you might be able to take advantage of your home equity to purchase another property.  It would be my pleasure to help you!

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Consumer View of US Housing Market Reach New Lows – But Is It Correct?

Neighborhood

Only 21% of Americans say it is a good time to buy a house, the lowest percentage ever in Gallup’s polling sample.

Prior to 2022, for example, 50% or more respondents unfailingly thought it was a good time to make a home purchase, and you can find the specifics of the poll here….

Graph of Percentage of People Who Said It Was a Good Time To Buy a House

The latest results are from Gallup’s annual Economy and Personal Finance poll, conducted over 3 weeks in April. Unbelievably, 78% percent of those surveyed say it is a bad time to buy a house right now.

To add some context, Gallup first asked Americans about their thoughts on the housing market in 1978, when 53% thought it was a good time to buy.

Per Jeffrey Jones’ report, “thirteen years later, when the question was asked again, 67% held that view. The record high of 81% was recorded in 2003, at a time of growing homeownership rates and housing prices.”

No doubt the respondents are sure of their positions, but does the data really bear that out?  And what does the future hold?

The Current Situation – Two Viewpoints

Per Jones, “in the past two years, as housing prices have soared and the Federal Reserve has raised interest rates to try to tame inflation, houses have become less affordable for many Americans, and views of the housing market have tumbled.”

Graph of Americans That Expect Home Prices to Rise

However, another housing survey, this one from the industry specific MBS Highway, showed in April another solid increase in buying activity as the spring selling/buying season kicked into high gear. This marks the 4th-straight month of improving sentiment for their report.  You can find out more on that here…

MBS Housing Survey in April 2023

68% of respondents characterized their market as ‘active’ and 33% of respondents indicated that they were now seeing price increases.

Media Bias Might Be To Blame

The latest Existing Home Sales report showed that the median home price declined on an annual basis for the first time in almost 11 years. That seems like a big headline, right?!

ABC News of Red Flags in Mortgage Market

This is a classic case of the media trying to gain and keep viewership with shock headlines.

In many ways, our mainstream media is not truly interested in digging deeper for the facts and truth.  You can find out more on that here…

First of all, the decline was only 0.2% – and it was for the median home price, which is NOT the same as appreciation.

FHFA’s latest appreciation report showed that home prices rose 5.3% year over year. And according to Case-Shiller, they rose 3.8% year over year.

FIFA House Price Index

These are the two best ways to measure home price appreciation.

The Real Inside Scoop

Although no one can deny that higher mortgage rates are keeping would-be buyers on the sideline, the story that no one is talking about is the lack of housing supply.  You can find out more on that here…

More importantly, let’s take a closer look at active listings in the US:

Graph of Active Existing Home Listings in the US

You might remember from your Econ 101 class that supply and demand is what sets prices.  Smaller supply means that a higher price is to be paid…so I do believe that home prices will not be going down any time soon!

Cartoon Graph with House in the Background

All things considered, the opportunity in this market appears to be very favorable.  If you are trying to wait to time the market, that home you are waiting for will just be more expensive down the road. 

And if you make that purchase now and interest rates fall (as many think will happen), you can easily refinance into a lower rate!

In Conclusion

Per Jones, “it is likely that Americans’ pessimism about homebuying reflects the high prices and high interest rates that are conspiring to make mortgage payments less affordable. These attitudes may keep many prospective homebuyers out of the market.”

If that’s the case, that means there is a window of opportunity for buyers ready to act today.

Do reach out to me to find out more, as it would be my pleasure to help you finance that investment property or the home of your dreams.

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