Real Estate Tumbles

Housing Market Prediction

As we finish the 1st quarter of 2023, there is a broad-based consensus that something ‘big’ is on the horizon regarding the real estate market. Unfortunately, it's not a very pretty nor rosy prediction, especially if you are a homeowner or seller. If you are a buyer however, sit tight and I’ll share with you what myself and other economists are saying about the uncertainty of this “oh-so-important” financial asset. There are 3 key market forces at play, which lead me to the conclusion that I’m about to provide, so if this topic is important to you –please take your time and absorb the following data.

The market factors that are having the greatest impact on anticipated changes in real estate prices are: mortgage rates, inflation and consumer sentiment. The hidden code in this discovery is that all 3 are so intricately entwined, that there is no true separation. If you are confused by this, think of how there is an interdependence between air, water, and food to sustain life. In comparison, when inflation is healthy; then both mortgage rates and consumer sentiment stay healthy. So, please allow me to touch briefly upon this subject so that I can make a point and arrive at a conclusion. To begin with, if you have any knowledge of the correlation between interest rates and home “unit” sales, it is easy to see we are in a very precarious position right now. In fact, that teeter-totter between demand and mortgage rates has been in play for over a year now. Plain and simple, the housing market is becoming increasingly sensitive to interest rates. This was much less of a concern about 10–12 years ago, but with our past experience from the housing crisis of 2009, many people are on edge.

The very tight monetary policy of the Federal Reserve over the past 15 months has significantly hurt the housing market, and will continue to do so. Thus far, it has been estimated by industry professionals that the overall impact to the entire US Market has been a price drop in values of over $2.25 Trillion. Although mortgage rates have fallen from a peak of 7.1% last November, they have only experienced a slight trend reversal …but it is still not significant. For example, the national average for a 30-year fixed mortgage has only dropped between 60–70 basis points as of 3/3/2023. Although market rates of interest are not double from…