As we dive into a new year, one cannot help but wonder what the housing market will do amid this fickle economy. Currently, mortgage rates for a 30-year fixed are sitting at approximately 6.63%, inflation is roughly 7.1%, and home sales on previously owned homes dropped 7.7% in November 2022, which is the slowest pace we have seen in the last decade. 

 

Are we nearing the peak for mortgage rates?  

Nadia Evangelou, Senior Economist and Director of Real Estate Research for the National Association of Realtors, is predicting one of the following three scenarios: 

1. Inflation remains high, causing the Fed to raise interest rates continuously, resulting in mortgage rates rising as high as 8.5%.  

1. The consumer price index responds to consistent Fed rate hikes, which lowers inflation. This would cause mortgage rates to stabilize near 7-7.5%.  

1. The Fed raises rates continuously to curb inflation, and the economy falls into a recession, causing mortgage rates to drop to 5%.  

As stated in this recent article, we anticipate rate hikes to continue. 15-year and 30-year mortgages should peak in early 2023 at approximately 8% and 7.25%. Rick Sharga, Executive Vice President of Market Intelligence for ATTOM Data Solutions, predicts “[rates will] gradually come down over the course of the year somewhat to hang in the range of 6.0% and 5.25%, respectively. This is entirely dependent on the Federal Reserve’s ability to get inflation under control and ease up on its aggressive rate increases.” 

Will home prices decline in the new year?  

On the national level, home prices should decline slightly in 2023. However, this prediction depends on the market; assuming more expensive housing markets will see higher declines. Unfortunately, the anticipated decrease in home prices in 2023 will not offset higher mortgage interest rates caused by inflation.  

Yet, one thing that will help sellers is the limited inventory of homes for sale. Eager buyers, especially first-time home buyers, might set aside interest rate concerns, especially if they have an all-cash offer or high credit scores.  

  

Will fewer people purchase homes in 2023?  

With increased mortgage rates and reduced home sales for the 4th quarter of 2022, home sales are expected to continue to slow, as much as 10-15%, in 2023.  

The average number of days a home is on the market will all increase back to historical “normal levels.” Dennis Shirshikov, Professor of Economics at the University of New York, and a Strategist for Awning.com, predicts that “the average days on the market will increase somewhere between two and three times the current levels.”  

  

Are we approaching a buyer’s market in 2023?  

Since home sales are slowing, it is natural to assume we are moving from a seller’s market to a buyer’s market. However, with high interest rates, you can expect a more balanced market.  

Yet, inventory should remain low as people will be extremely hesitant to trade in their 3% mortgage for a 7% mortgage. Home builders have also scaled back on new spec home construction over the last few months, which will lead to a smaller supply of new construction soon.  

However, over the last few years, people have rushed to smaller or suburban markets as they need more space due to distance learning and remote work. As our economy is restored to a pre-pandemic lifestyle, more people are back in the office. We may see an increase in home sales in larger, urban markets.  

 

What can you do to prepare? 

There are many things you can do to help prepare yourself for a fickle market.  

1. Utilize your network. Become a thought leader in your industry to assure prospective clients you are tracking the market and on top of potential changes. From local news to school board referendums, connect with people and ask thought-provoking questions to gain insight on what your audience likes to learn about.  

1. Ensure you are using various forms of technology to provide an exceptional buying and selling experience for your client.  

1. Consider partnering with a notary service and adopting online closings. When you utilize remote online notarization for your clients’ needs, they can close on their property at anytime, anywhere a reliable internet connection is available.  

 

A Better Way to Close with BNN Services  

Since 2008, BNN Services has been trusted by title agencies, mortgage lenders, servicers, and consumers to perform loan and document signings in multiple languages across the country.  

Unlike other signing services, BNN Services “touches” every file 8 to 9 times, ensuring the process moves forward free of delays. That is why we have completed over 250,000 signings in all 51 jurisdictions and maintained a closing ratio of 96 percent.  

Ready to experience the BNN Services Difference? Get started today! 

2022 brought inflation rates higher than we have seen in decades. Prices rose three times higher than the targeted rate of 2%, based on the Personal Consumption Expenditure price index- the Fed’s preferred inflation gauge. In March, the Central Bank identified the surge in inflation and raised the benchmark rate by 25bps. In May, they increased it by 50bps, and in June, the Federal Reserve announced a plan for rate hikes of 75bps (per meeting) until our economy slows down. In December, the Fed announced a rate hike between 4.25%-4.5%, a smaller than an anticipated hike, which is great news for the real estate industry.

Over the last six months, the real estate industry has suffered from increased home prices, low inventory, and high mortgage rates. Jerome Powell, the Federal Reserve chair, expressed that slowing rate hikes is appropriate as the economy responds accordingly. So, what does this rate hike mean for home buyers? You can expect borrowing costs to rise from 4.6% (as of September 2022) to 5.2% by the end of 2023. Home buyers should not expect a rate decrease anytime soon either, as the Feds anticipate it will take until 2024 for rates to decrease slowly.

These rate hikes are directly related to increasing interest rates and reducing the demand for mortgages in the industry. The Central Bank has implemented rate hikes to reduce inflation to the preferred 2%. Powell explains, “We continue to anticipate that ongoing increases will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive…”

By the fourth quarter of 2022, mortgage rates peaked higher than 7% following slower-than-expected inflation readings that month. By December, the rate for a 30-year fixed mortgage had declined to 6.30%. While welcome news, interest rates are three percentage points higher than at the beginning of 2022, which has slowed down purchases and refinance applications. You can expect lower purchases in the upcoming months as people still expect more interest rate hikes; however, once things level off, buyers will return to the market in the forthcoming months. The Mortgage Bankers Association predicts that the average 30-year fixed mortgage rate will fall to 5.2% in 2023.

 

A Better Way to Close with BNN Services    

Since 2008, BNN Services has been trusted by title agencies, mortgage lenders, servicers, and consumers to perform loan and document signings in multiple languages across the country.  

Unlike other signing services, BNN Services “touches” every file 8 to 9 times, ensuring the process moves forward free of delays. That is why we have completed over 250,000 signings in all 51 jurisdictions and maintained a closing ratio of 96 percent.  

Ready to experience the BNN Services Difference? Get started today!