Since the real estate market shifted last year (late spring/early summer in our market), there has been no shortage of speculation as to what the year ahead will bring with mortgage rates, inventory, sales, and of course, prices. I've been reading it all -- from local agents' and mortgage brokers' LinkedIn posts to national coverage in the NYT and WSJ and everything in between -- so here's a little summary...
While pretty much all forecasts are predicting fewer home sales in 2023, just how much activity will decrease and how long things will stay slow is unknown. One national brokerage is predicting we'll see a 16% year-over-year reduction in sales, which would be the lowest since 2011, the last year to show major effects of the subprime mortgage crisis. Meanwhile the Chief Economist at the National Association of Realtors expects a much more moderate decrease of 6.8% from 2022 sales.
Although not great news for the year overall, the spring market is typically a lot busier than the fall, and certainly the winter -- at least here in our market -- so I'm guessing we'll still see a jump in activity as we start the year.
In terms of interest rates, we ended 2022 with an average 30-year fixed rate of 6.42%, more than double the 3.11% rate a year prior, but down from the 52-week high of 7.08%. While things *seem* to be improving on this front, and I've actually heard some local mortgage lenders predicting rate decreases to, or even below, 5% this year, most industry experts are more conservative. Take this sampling I pulled from a recent Forbes article:
Zillow Senior Economist Jeff Tucker: “If inflation convincingly cools down, and the Fed subsequently stops tightening monetary policy, we could see rates begin to ease back down. The best bet is that we continue to see mortgage rates in the ballpark of current levels, perhaps from 6.5% to 7.5%.”
Mortgage Bankers Association (MBA): An average of 5.5% at the end of 2022 and 5.4% at the end of 2023. “We expect significant volatility in rates in the near term due to quantitative tightening by the Fed and other central banks, and as markets grapple with significant geopolitical, economic and monetary policy uncertainties.”
National Association of Realtors (NAR) Chief Economist Lawrence Yun: “The new normal for mortgage rates looks to be near 7% for the 30-year fixed rate. A better rate of 6% will be available to those willing to go with a five-year ARM.”
Freddie Mac: Forecasts rates dropping from an average of 6.8% in the fourth quarter of 2022 to 6.2% in the fourth quarter of 2023.
Basically it's anybody's guess.
In the meantime, savvy buyers can take advantage of lower rates on 15-year loans, which as of Dec 29 were averaging 5.68%, and increasingly-popular adjustable rate mortgages, where sub-5% rates are still a thing. Also, it's worth checking around with a few local lenders, especially those offering portfolio loans, which had the best rates I was seeing in 2022.
And this would be a good time to share an old real estate adage for those of you thinking of buying a house: "Date the rate; marry the home." Because of course, you can always refinance, but if you wait to buy until rates come down, you'll be competing with a much larger buyer pool and it may be harder to secure a home. Meanwhile, our current, quieter market is much easier on buyers than anything I've seen in years -- inspections and financing contingencies are again possible, prices aren't going 10, 20% over asking, and you might just get to keep your first-born child ;)
On the other hand... don't expect a fire sale. Cambridge and Somerville home prices have historically held strong in down markets, basically plateauing instead of dropping. Keeping in mind this is based on statistical averages -- on a case-by-case basis, I have definitely seen some home values go down. But any overall reduction in prices will likely be precluded by our perennial lack of inventory.
Even while the buyer pool has drastically shrunk, reducing multiple-offer scenarios and increasing listings' time on market, sellers' reluctance to list will likely drive supply down enough to match the decrease in demand. We're dealing with a double-whammy on this one -- first, homeowners are naturally wary of trying to sell when they know the market is soft; second, most of them will also need to buy a new home and are not keen on giving up their existing sub-3% mortgage for one in the 6-7% range. (Commonly being referred to as the "lock-in effect.") I heard a statistic that something like 80% of homeowners with mortgages have a current rate at least two percentage points lower than what they could get now. So most of the current homeowner population likely doesn't want to sell right now and will hold off if they can.
So... will ANYTHING happen in real estate this year or should I just take a sabbatical?
Only time will tell, of course, but going into the year, I expect to be less crazed (a welcome change after the insanity-that-was-the-COVID-market) but still busy. After all, the decision to buy or sell a home is not a purely economic one -- it is based on life events and practical needs. So as long as people are getting married or divorced, having kids or sending them off to college, changing jobs or taking advantage of new remote work opportunities, homes will be bought and sold, and I am standing by to help :)
Happy new year everyone!