2023 Mortgage and Real Estate Predictions

It’s almost 2023, which means it’s time for a new batch of mortgage and real estate predictions for the new year.

My impression is that everyone wants 2022 to end sooner, because it hasn’t been kind to anyone.

Very high mortgage rates have completely derailed the housing market, causing lots of layoffs and closures throughout the industry.

And there remains a lot of uncertainty about what next year will bring, although I am somewhat optimistic.

Read on to see what I think 2023 holds for the housing market and mortgage industry.

1. Mortgage rates will be lower in 2023

Let’s start with the elephant in the room; mortgage rate,

They have been the story of 2022 without question. Sadly, because they increased at an unprecedented clip and derailed the hot housing market’s decade-long bull run.

Of course, this was by design as the Fed believed that the US housing market was bubble territory and volatile.

However, I believe interest rates overshoot the mark and 2023 will see some respite.

30-year Fixed has already declined from its 2022-high, and may continue to slide back into the 5% range and even the high-4% range,

So it’s something to look forward to. Check out my upcoming 2023 mortgage rate predictions for more details on that.

2. The housing market will not crash in 2023

Related to low mortgage rates is the health of the housing market. Ultimately, the housing market actually stalled because of very high mortgage rates.

It’s not struggling because of questionable mortgage underwriting, questionable loan programs, or rampant unemployment.

Ultimately, the Fed saw that the demand for housing was high and took measures to address it.

If you take mortgage rates out of the equation, we don’t have a big drop in home prices.

So if mortgage rates continue to improve, or even remain stable, home prices don’t fall and neither do interest rates. housing crash in 2023,

At the same time, areas of the country that have seen large increases in home prices may be more vulnerable to price declines.

The good news is that home prices have risen so much over the years that even a 20% drop is just a paper loss for most homeowners.

In other words, your home is still worth more than when you bought it, but probably not as much as it once was.

3. But we will see more consolidation in the mortgage market

sadly there are tons mortgage layoff And lenders close in 2022, thanks in large part to a sharp rise in mortgage rates.

It was a perfect storm of record low mortgage rates meeting the highest mortgage rates in decades, all within half a year.

Simply put, lenders hired and hired to deal with the unprecedented refinancing demand, but once that dried up, a lot of staff had to be let go in order to cut costs.

Demand has dropped so much that many lenders have had to close permanently, especially those that are fully focused mortgage refinance Buy vs.

While more companies exit the mortgage space, we will see consolidation at the top as the bigger players get bigger and grab market share.

This means fewer lenders and more commoditized products to choose from.

4. Home prices to remain mostly flat in 2023

While there has been a lot of gloom and sadness lately, there have also been bright spots, like a positive cpi report and reduction in inflation.

As we enter the new year, perhaps the decline in house prices will also slow down. If the damage already done is enough to rebalance the housing market, we could see the decline in home prices stabilise.

After all, we’ve already experienced a big drop in prices since spring, so the ice-cold housing market could heat up if rates fall and potential buyers renew their interest.

While I am not convinced of the NAR (realtor) forecasting a 5.4% rise in house prices next year, I believe flat or nearly positive prices are a possibility.

Zillow Predictions of Home Value Posting 0.8% growth till the end of October 2023 seem right. MBA also increases YOY ​​home prices by 0.7%.

Of course, price fluctuations will be local, as they always are, with some markets doing better (or worse) than others.

Know your local market to determine the temperature if you are in the market to buy or sell.

5. The Spring Home Buying Market Will Actually Be Decent

Despite several recent headwinds, the spring of 2023 will be a good season for home buying.

No, it is not going to be filled with bidding wars and offers above the asking. Nor will total home sales be as high as they were in 2022, and certainly not in 2021.

But I think the combination of lower asking prices and better interest rates will strengthen the market.

Remember, there are a ton of possibilities, upcoming home buyers Those out there who want and need a home.

If mortgage rates were 7% in 2022, and fall to the high-5% range, that combined with a 20% haircut on pricing could re-energize the stalled housing market.

So much so that home prices could stabilize in 2023 after seeing some pretty big markdowns in the second half of 2022.

6. Buy Down and ARM will become more common

As mortgage rates remain high, mortgage purchase And adjustable-rate mortgage There will be gain in popularity.

The ARM share is already around 9%, but it has a lot of room to grow if lenders continue to offer such products. 5/1 ARM either 7/1 ARM,

Here’s the rub though – if lenders don’t offer ARMs, or don’t offer significant discounts on ARMs, most borrowers will be forced to go with the more expensive fixed-rate mortgage.

To relieve some of the pain associated with high-rate 30-year fixed mortgages, buyouts will become more and more common.

Lots of home builders are already offering buydowns, and even big lenders like Rocket Mortgage have started offering their so-called inflation buster,

These buydowns provide payment relief for the first year or two before returning to the higher note rate.

The question is whether this will be enough time to bridge the gap to low interest rates.

7. Bond holders’ underwater stake will rise

Because house prices have been under extreme pressure recently, will inevitably be more underwater landlord soon.

black knight recently noted That 8% of home buyers in 2022 are “at least underwater now.”

And nearly 40% of these home buyers have less than 10% equity in their home, which could put them in a negative equity position if property values ​​drop even slightly.

This is most pronounced with FHA and VA borrowers, with more than 20% of 2022 homebuyers with negative equity status, and nearly two-thirds with less than 10% equity.

This illustrates one of the problems with ARM, buydowns, and other apparently temporary financing solutions. They work until they don’t.

If these homeowners are underwater, it will be difficult to bail out and refinance separately streamline refinancing programs which allows for a higher loan-to-value (LTV) ratio.

8. Foreclosures and other distressed sales will remain rare

mortgage delinquency

People thinking of bargaining will need to be patient. Despite declining appreciation and markdowns in existing inventory, prices remain historically high.

At the same time, mortgage defaults and foreclosure initiations remain very low, despite recent increases.

Per Black Night, the national crime rate rose to 2.91% in October, lower than the 4.54% average seen between 2000–2005.

And the 19,600 foreclosures that began in October were a full 55% below “pre-pandemic norms.”

That’s not to say that homes won’t suffer losses, especially if home prices fall and unemployment worsens, but it’s not 2008 all over again.

In short, today’s homeowner has a lot more equity to work with and better loss mitigation options that were born out of pre mortgage crisis,

They may also have the option of renting out their property and cash flow positively.

9. Home Equity Lending and Home Improvement Trends to Stay Hot

A bright spot in the mortgage financing space may be home equity lending, which includes home equity loan and credit lines (HELOC,

This plays into the tendency to keep assets rather than sell them, as selling is not nearly as sweet as it once was.

There is also the issue of where to go next if you sell. And because first mortgage rates are so high relative to levels a year ago, most will opt to finance reform with a second mortgage,

While not a 2-3% interest rate, home equity rates will still be better than most other options, and allow homeowners to freshen things up while enjoying their ultra-low first mortgage rate.

This should be a boon for banks, mortgage companies and fintechs who are able to sell a compelling product.

It could also benefit the likes of Home Depot and Lowe’s as more people stick with what they’ve got and improvise.

Of course, this would mean fewer home sales, which is a clear negative for real estate agents.

10. iBuyers Will Offer You Lower Prices for Your Home

If you are not aware, your home is not worth as much as it was.

Of course, you would never have noticed if you hadn’t tried selling earlier this year. or obsessed with Zestimate either Redfin Estimates,

What You Can Expect to See in 2023 Are Especially More Bargains iBuyers Trying to pay probably too much in 2022 and before.

These companies will make you a cash offer on the spot (basically) for your home without you having to jump through hoops or use an agent.

The tradeoff is that the price will be very low compared to what you can get on the open market.

In theory this is probably how these types of businesses should work, but we haven’t seen that in an environment of rising home prices.

You can see more realistic offers from iBuyers and other companies/agents who approach you to buy your home in 2023.

This is ultimately a reinforcement of the new reality in the housing market. There is more equilibrium where neither buyer or seller has a lot.

But those who must sell in 2023 may get a raw deal with the uncertainty of how the housing market is faring.

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