S2E30 – 2nd Half of 2023 Housing Market Forecast

What will the 2nd half of the housing market look like in 2023? Does it make sense to buy now or should you wait? Will Housing Prices Crash? Will housing become more affordable? Are mortgage rates going to stay high or will we see some relief? In this episode, we discuss our housing market forecast for the second half of 2023, covering expectations for inflation, mortgage rates, supply of homes for sale and buyer demand to help you become The Educated HomeBuyer.

✅ – Want to get connected with us or to a local expert in your market, please reach out at http://www.theeducatedhomebuyer.com/expert

Connect with me 👇 Jeb Smith (huntington beach Realtor/orange county real estate) DRE 01407449 Coldwell Banker Realty ➡I N S T A G R A M ➳ https://www.instagram.com/jebsmith ➡Y O U T U B E ➳https://www.youtube.com/c/JebSmith

Connect with me 👇 Josh Lewis (Huntington Beach Certified Mortgage Expert) DRE 01209148 Buywise Mortgage M:714-916-5727 E: josh@buywisemortgage.com ➡I N S T A G R A M ➳ https://www.instagram.com/borrowsmartjosh ➡Y O U T U B E ➳https://www.youtube.com/c/buywiseborrowsmart

📩 – info@theeducatedhomebuyer.com

For Show Notes, See Below 👇

[00:00:00]  Jeb Smith, Huntington Beach Realtor: In order to see where you’re going, sometimes you have to look backwards, and that’s exactly what we’re gonna do in today’s episode. We’re gonna be talking about a second half forecast for the housing market to give you an idea as a buyer, seller, investor in today’s market of what to expect. And in doing so, we’re gonna take a look at where we are now, where we started the year, where we were last year, about the same time, just to give you an idea of where things have gone. Again, a look in the rear view mirror, if you will, in order to project our thoughts on where we go from here. 

And a lot of this, to be completely honest, Josh and I haven’t talked about in a lot of detail, so we’re gonna be having a conversation on air about our thoughts of where the market goes from here, and hopefully that provides a little bit of value to you.


[00:01:02] Josh Lewis, Expert Mortgage Broker: The big thing that I want to say is I had a conversation, actually helping a financial advisor who I’ve worked with for 15, 20 years. So prior to the last crash. And we went through and compared notes through that process and both had some very similar expectations of what was gonna happen in 2007, 2008. We both were horrifically disappointed. We thought that we’d see about a 20% correction. Most parts of the country saw bigger than that. 

And he sold his home here last year in Orange County, had bought another home in Washington, and is now buying a home again in Orange County. The business is based here in Orange County.

And in going through that, we were again comparing notes, talking about different experts that we follow, trends, numbers, and he said, “here’s the deal. At the end of the day, you and I can analyze this till we’re blue in the face and we know it better than most people and we’re gonna be generally correct, but it’s economics. No one knows what’s gonna happen. There could be a black swan that blows this whole thing up, good or bad or indifferent.”

But even outside of one of those big, crazy events, Jeb, Just the normal day today. There’s so many variables, like we have really narrowed and condensed the focus of this conversation of what we’re gonna talk about. But there’s 6, 8, 10 variables today that we’ll talk about, and it’s far from a comprehensive list. 

[00:02:19] Jeb Smith, Huntington Beach Realtor: And again, real estate’s local, right? Something we talk about all the time. We’re based here in Southern California, in Orange County. Our market is a little bit different than other markets.

There’s a lot of money in our market. There’s just at the moment a lack of supply, and we’re gonna be talking about supply as well, which is really driving the market here. If you’re in a market that has a lot of supply, doesn’t have the economy that say in Orange County does, you might experience a little bit different housing market going forward than what you know we’ve experienced.

And also Josh, something that we talk about all the time is that, California has primarily been a state that gets appreciation annually over an extended period of time. I think the number is somewhere around [00:03:00] 7% in California on an annual basis over an extended period of time. Not in a straight line, some years up, some years down, some years flat, what have you. 

Whereas other parts of the country, the better part of 15, 20 years saw very little appreciation. And then over the last couple of years have seen some somewhat of a monster appreciation in some of these markets because of changes in work environments, changes just from the pandemic that have allowed people to do things they weren’t allowed to do prior to that.

And the markets that were flat for 15, 20 years, very small appreciation and then saw this monster appreciation. Those, in my opinion, are the ones that probably get back to the norm quicker than some of these other markets because you’re not gonna have that continued influx like you did during the pandemic. Or maybe not.

But I think that’s something we’ll talk about in today’s conversation. But Josh. The thing that’s driving the market at the moment is supply. And I think that’s a really good place to start because, we always talk about markets are driven by supply and demand, right? And at the moment what we have is a lack of supply.

We also have somewhat of a lack of demand, but because the two are more or less in sync, they’re both on the lower end and almost balanced, you’re seeing price stability. So let’s talk about, where we were this time last year, maybe even where we were at the beginning of the pandemic in order to get the conversation moving where people understand how much supply impacts what’s happening right now.

[00:04:34] Josh Lewis, Expert Mortgage Broker: Before you hit those supply figures, Jeb, you said something real important in that last segment there saying California 7% plus, historically, a year of your appreciation over a very long timeframe. Nationwide, it’s more like 4.5%, so two and a half, 3% more in California. Prior to the last downturn, one of the things that the anti crash people said, “Hey, there’s nothing here to worry about. We have never seen year over year decrease in home prices nationwide.”

Crazy idea. Does anyone care? We’ve seen Houston crash before. We’d seen Los Angeles crash before. We’d seen San Francisco crash before. So regional crashes. So that’s important here in what we are looking at is we’re looking at the big macro picture, but you do need to have experts in your market if you’re looking to make decisions, if you’re a homeowner and you’re gonna continue to be a homeowner it’s not important. Don’t focus and obsess over the day-to-day movements.

If you’re looking at entering the market. If you have some properties that you want to sell. Wanna rotate into an exchange into something else, it’s important to note that. And Jeb, so the last piece on that cyclical versus non-cyclical markets.

So California had those corrections. Then we have a big runup and then a correction and a big runup. And historically you pointed out that is not what we’ve seen nationwide. I compare this when I went to school in Washington in 1993, I went up there and I look around and I go, this is like a different world, different style, different music, different tastes of everything. 

And now you look because of the internet, cable and satellite tv, but really because of the internet, things are similar [00:06:00] everywhere. I think we saw some of that in this last run up.

People in areas like Omaha, Nebraska that isn’t cyclical saw more appreciation largely because of the decrease in interest rates, that increased demand, but also because. HGTV is huge. You see all of these shows, Joanna Gaines, in every Target, in every town, everywhere. People like design. Homes became entertainment.

So all of that’s a little different and it’s gonna change and impact things going forward, but really within the context of the numbers, you have to know your market. So with that Jeb back to supply. 

[00:06:33] Jeb Smith, Huntington Beach Realtor: Yeah. And I think it’s important to start with, the idea of what is a balanced market, right? So a balanced market typically, what it’s historically been is six months of inventory, right? Six months of active inventory on the market is more or less a balanced market, right? Not in favor of buyers, not in favor of sellers. And quite frankly, I don’t know, the last time we had six months of inventory, Josh. I was trying to look back at actual data and get some, some factual numbers there, and it was hard to figure out when we had six months.

But with that said, I don’t necessarily look at the months of data and say, okay, you’ve got six months, you’re automatically balanced because typically that’s how people have gauged it. But I think it’s important, again, to look at demand, to look at what’s going on in the market and all of those different factors.

But let’s talk about supply, because supply really is the driver at the moment. At the end of May, sitting around three months of active inventory nationwide. And for most people listening to this go, what does that mean? That means absolutely nothing to me. 

Let’s put a number to that. So as of today, June 5th, the day we’re recording this, we’re sitting at

[00:07:39] Josh Lewis, Expert Mortgage Broker: July. Jeb, July 5th. 

[00:07:40] Jeb Smith, Huntington Beach Realtor: July 5th. Wow. I lost a month. Skipped month. Damn. I just lost a month. I got a month older in my, in this conversation. As of filming this, we’re currently sitting at 465,000 listings nationwide. So that’s single family, condo, detached homes, all of that. 465,000 homes on the market. 

Let’s take it back to this time, what last year? 2022, 240,000 homes was the low on the market? 240,194 is the actual number. And what we saw was interest rates went up, right Inventory started to build, and everybody thought, okay, this is where the quote unquote crash happens because rates are going up, inventory is starting to go up. This is the end. 

What we saw was some actual price stability towards the very end of the year. And as we started the year, we started to see some demand start to come in the market. And so we started the year at 472,000 homes. The lowest number we saw this year was somewhere around 400,000. So we went from 472k down to 400k. We’re back up to 465k, but we now have less inventory on the market today than we did this same week last year.

So we’ve now gone under 2022 levels of inventory, [00:09:00] which everybody thought last year, rates went up, inventory’s gonna build, it’s going to continue to build. And we’ll talk about why we haven’t seen that continual build in inventory. But it’s important to know we have less homes on the market right now than we did last year.

In fact, last year this time we added 91,530 new listings to the market during this week. This year, 62,000. So a lot less listings coming on the market, and that’s why we’re not seeing inventory build, right? Just because there’s not new listings coming to the market. And that’s what’s keeping inventory suppressed. 

And if you want some context, 2015, we had 1,183,000 listings on the market compared to the 465,000 that we have right now. So I know that’s a lot of numbers being thrown at you…

[00:09:49] Josh Lewis, Expert Mortgage Broker: More than double Jeb. More than double, yeah. 4 65 versus 

[00:09:51] Jeb Smith, Huntington Beach Realtor: I’m numbers, I’m rambling a little bit over here. It was a long July 4th. I’m just waking up and here we are doing numbers but nevertheless, Lot less supply, and because of that we’re seeing the market more or less flatline, right? Price stability in the market, Josh.

[00:10:07] Josh Lewis, Expert Mortgage Broker: So let’s transition from there over to demand. Okay. We’ve talked about the supply of homes available in the market three months versus a six month balanced market. Half of where we were in 2015, less than half, about 40% of where we were in 2015. Also undeniable that demand is down. Different ways of measuring demand. 

One of the preferred measures is weekly applications. The Mortgage Bankers Association puts out week over week numbers. You and I looked at the chart and said, what is this thing telling us? It’s about 50% of the weeks this year, applications were up. About 50% of the week applications were down. So what I did is I went in. Optimal Blue, we talk about Optimal Blue is a pricing engine, a pricing and lock management engine that 60% of the lenders in the United States use.

So their data of what’s getting locked in a given week is a very good indicator of actual activity. Loans that are likely to close. If we look at purchases, and it’s really the important part in the context of this conversation, is they’re down 28% year to date from 2019. And why are we looking at 2019?

That was our last normal year. 2020 was not normal. It was way down then way up 2021 was just nuts. Insane all year. Last year was way up then way down. So 2019, I’m not saying that is the perfect normal baseline year, but when you look at that, we’re down 28% and it’s probably down 40, 45% from those crazy boom years.

So you look at that, we have more inventory than we had a year ago. It’s doubled from the bottom, but we’re still at about three months of inventory. We have about 40% less demand for those homes, but for the amount of homes that are coming on the market and available, we have more than enough demand to take those down and support prices. And that is what we’ve seen. 

We saw a few month over month reads where home prices went negative. And now we’re going on by most measurements, Jeb, would we three, four months [00:12:00] into positive year over year figures. So not the crazy boom year numbers where you’re seeing one and a half, 2% home price increases month over month.

But some healthy solid increases. And we’ll have some weird reads over the next few months, but by the time we get to the end of the year here, where the end of 2022, where we transition from really low rates, lots of buyers to higher rates and enough sellers that they actually had the people that wanted to sell because they wanted to buy before rates shut up. They had to adjust their prices. 

When that works its way out of the system, I think next year we get past the next six months, early 2024, is it gonna give us some really good year over year reads? Because 2023 is gonna be more of a normal year versus the 2022 transitional year from the boom market to a slow market. 

And Jeb, you talked about the crash. People are saying last year, oh, the crash is coming and we look, prices have not crashed and we don’t expect them to. Volume has crashed. We are literally at 65% of the transaction volume that we had, and that was coming off of a high baseline. 6 million plus is about the highest we’ve ever been nationally, and 4 million is the lowest we’ve been, we’re just above 4 million transactions.

Annualized home sales across the country. And that’s we’ve never really dipped below that since 1996 or going on 27 years, we’re at the lowest levels of volume. 

[00:13:18] Jeb Smith, Huntington Beach Realtor: Yeah, and we always talk about, willing and able buyers, right? There’s never a lack of willing buyers, people that want to own homes. But there’s a lack of able people, that are, I guess even if they’re able in some cases, willing to jump on and buy homes at higher prices, higher interest rates. 

And that’s really what we’re seeing and that’s what’s affecting demand. And even though supply is low, demand is low, that’s what’s creating that balanced market, Josh. But rates are a key driver in that, so it’s important. Let’s talk about rates, where they’ve been, where they are now.

And then, in the second part of this episode, we’re gonna talk about forecast on some of this stuff, where we expect to see things going because rates are going to be a key driver in the direction of home prices really over the foreseeable future. 

[00:14:01] Josh Lewis, Expert Mortgage Broker: So this rate conversation is painful for anyone that missed the window, either for wanting to refinance to a lower rate or get into the market as a homeowner.

January 1st, 2022, 3.29%. So it was off the all time lows, but still extremely low. Everyone today would do back flips for a three and a quarter interest rate. Within six months, July one of last year, we were up to 5%. And if you remember, Jeb, the funny part it’s cute looking back and going, oh my God, everyone’s in a panic rates are 5%. 

And right now we’re saying, Hey, everything will settle out if we get back to 5%. By the end of the year, we closed at 6.45%, but we had peaked at 7.37%. So between July and the end of the year, we ran all the way up to seven almost seven and a half, and came back down to about six and a half by the end of the year.

And that Jeb was where we saw some of the pricing adjustments. Because again, a lot of the people that listed in the second half of last year where we saw that increase in supply, most sellers are buyers. [00:15:00] So people were looking out and going, Hey, rates are shooting up. We need to get outta here. We’ve got three kids and it’s a two bedroom house. We cannot stay here. Get outta the condo, get into a single family. And those people listed and they took what they could get and they went and bought the house before rates shot up any higher. 

Most of those people have worked their way through the system, so we don’t have a whole lot of motivated buyers. We haven’t got to forced buyers. We don’t really have a huge recipe for that. But you don’t have distressed people having to sell. Most people get to make the decision. And the people that really were needing to move, needing to sell did that last year to take advantage before rates shot up. 

Year to date, we’ve seen some interesting stuff. The high for last year was 7.37. The high for this year, we’re currently sitting there, it’s fun and pleasant to look at. 7.03%, so just over 7%. We expected that was gonna be in the rear view mirror. That 7.37 last year was the peak. Best case for the year, we had got down in February back to like 5.89, 5.99%, just under 6%. 

[00:16:03] Jeb Smith, Huntington Beach Realtor: And with that, Josh, we actually saw an increase in buyer demand though, right? Rates just came down a little bit and demand shot up. 

[00:16:09] Josh Lewis, Expert Mortgage Broker: So yeah, so we took from 7.37 down to six, and if you look applications, that was the biggest spike we saw in applications. So there is a correlation to that.

Jeb, I was watching a podcast this weekend with one of the guys that we like following the data folks over at Altos Research. And what he is saying is what we’ve seen is when you see these rapid changes in interest rates, that reduces demand. Once it normalizes what we’ve seen over the last year and a half is people get used to it and they go I guess it’s not going back down, they start buying and if it comes down, great. 

But we’re back near the high end of that range. It’s impacting affordability, it’s impacting able demand and it’s putting a ceiling on prices. So don’t have a recipe for a crash. Don’t have a huge recipe for massive price appreciation or much, if any, price appreciation.

So we get into that forecast for the second half of the year. Jeb, we gotta talk about seasonality because the tailwind section of the year is pretty much behind us. And we’re moving into, if not the headwind, at least the lull of the year and see how that’s going to impact things. So what has that done for us year to date on prices, Jeb?

[00:17:10] Jeb Smith, Huntington Beach Realtor: Prices we just got what the latest case Shiller index about a week ago or so, and I think we were down point. 0.02% 0.02 or 0.2 either way, 0.2%, I think year over year. So more or less flat, right? Home prices are more or less flat year over year. 

And you have to understand that may of 2022. It was the peak in prices, right? So the hottest time of the year. And from there we saw prices start to come down. So you’re getting in, Josh mentioned seasonality. You’re getting into the lull of the year here in the next couple of months. And last year was still a hotter year with the number of transactions happening than this year.

So when you’re looking at data and hearing data reported, there’s a really good chance that the numbers out there are negative. They’re disappointing to some extent when compared year over year. And it’s because, there’s just [00:18:00] less things happening in the market at the moment because of where people are sitting with interest rates, because housing affordability hasn’t really improved.

In fact, it’s gotten worse year over year because rates have gone back up and prices haven’t come down nearly enough to correct that jump in rates. And so therefore, people are either priced outta the market, choosing not to buy or just can’t buy for one reason or another. But people are always asking Josh, who is buying homes?

Who are these people that are buying properties in this market? The latest data shows that 28% in May were first time home buyers. Now that’s down 1% from a month prior, but up 1% from May of last year? So it’s up a little bit year over year, but more or less flat. If you’re looking at it like that. 

Cash was still 25% of the market in May. Now that’s down from 28% in April. Month over month is hard to gauge in some of these things. It’s, in my opinion, better to look year over year. You just get a better idea of it. I don’t have the year over year numbers, but it’s usually somewhere in that 25, 28% range. But what I will say in the market as a real estate agent out there and talking to other agents, there’s a lot of cash out there in the market.

You’re putting in offers on properties, many times going above the asking price. Many times being really competitive and you get beat out by a cash offer. And it’s not a cash offer at a price that is a distressed price. Where hey, the property’s listed at a million bucks and somebody’s coming in with cash and getting it for 800.

No, the cash people are still making offers at or above the asking price. They’re just a little bit more attractive on paper because of typical quicker timelines, no appraisal, no loan contingencies, that sort of thing. But there’s a lot of cash out there in the market at the moment, and that’s what you’re competing against a lot of time as a buyer. So just keep that in mind. 

Distressed sales, 2%. That’s more or less the same as last month, more or less, the same as year over year. When we talk to stress sales, we’re talking foreclosures, we’re talking short sales, that sort of thing. There’s just not a lot of it out there. Some of it is just the fact that coming out of the pandemic there were programs to help people. Different lenders doing different things to keep people in their properties, but we’re still back to lower levels than we were prior to the pandemic. So if you’re out there looking for foreclosures, I would say don’t hold your breath because good chance you might pass out. But Josh, anything we want to add before we jump into second half forecast? 

[00:20:25] Josh Lewis, Expert Mortgage Broker: No, that’s a pretty good view there of the supply demand dynamics, what’s happening with interest rates, affordability and gives you a good overview of what’s happened in the last 18 months, but specifically the last six.

[00:20:36] Jeb Smith, Huntington Beach Realtor: Yeah. And I know we’re gonna talk about GDP. We’re gonna talk about inflation, we’re gonna talk about some different things here. But let’s lead by talking about seasonality. Supply. So we’re in like Josh said, first week of July, and, seasonality cyclically, there is a peak in inventory usually towards mid-August. And that’s because kids are back in school, vacations are [00:21:00] over, people are getting back to the grind. They don’t wanna change their kids in the middle of the school year. So a lot of it happens prior to the start of that time.

Now, you’re probably listening going, Jeb, what happened the last couple years, the last couple years were those black swan events when you look back historically where they’re just not normal in the sense of having a lot of demand in the fall winter markets. And so what we saw last year is we started to transition back to that.

We saw it this year where our spring market was the hot market, and we’re starting to see that lull in the market, and my guess is you’re probably gonna see inventory peak here in the next four to six weeks. Which means from that point forward, you’re likely going to see less new listings coming to the market, inventory is not going to build, and inventory is building a little bit.

If you heard us start the episode, we added about, I think five or 6,000 homes week over week in inventory, which may seem hey, you’re still building inventory. You are to some extent, but what happens is it’s more or less property sitting on the market and not going into escrow versus a lot of new listings coming to the market. You just have less transactions, going under contract, and therefore it’s allowing inventory to build. 

What’s gonna happen here in a couple of weeks is you’re gonna have less people probably going under contract just because it’s that time of the year. But you’re also gonna have less inventory coming to the market, which in my opinion is gonna create a little bit more balance to some extent, but it’s also going to be disappointing when you look at the numbers of transactions actually pending and existing home sales, Josh. 

[00:22:33] Josh Lewis, Expert Mortgage Broker: Absolutely. It will be an interesting second half of the year. Anytime you have weird interventions by the government, we haven’t had a free market for the last few years, it will be interesting to see what happens throughout the remainder of the year. Last year wasn’t typical cuz as we said, we had a lot of sellers rushing to sell because they were seeing their window closing and we won’t have that.

You show on the live show the last few weeks that Altos Research chart and we talked about the shape of the seasonal movement last year on that chart was very different than the last two, three years. The absolute levels change year over year, but the seasonality looks very similar.

I guess the last thing I would say on seasonality, Jeb, one of my favorite things is our friends who love to follow us and make Trollish comments on YouTube love to talk about, “of course home prices have gone up month over month, the last 2, 3, 4 months. It’s seasonal. It happens every spring.”

It does. Except when you have a crash. Last time we had a crash, we were down three 4% a month, right through the spring season back in 2008. So it’s not magic where every spring home values go up. We had some very small increases after some very small decreases. And again, I’m looking forward to next year. I don’t wanna be another year older. I’m already old enough, Jeb, but I do wanna see some year over year data off of a more reasonable baseline versus a unique year last year. 

[00:23:52] Jeb Smith, Huntington Beach Realtor: Stop wishing time away. Stop it. But let’s talk about what we’re gonna watch. What are, what is there to watch right now?

What are you and I paying [00:24:00] attention to? What’s the Fed paying attention to? Because the Fed while they don’t control interest rates as many people out there believe, they do put comments out in the market and those comments do weigh on things like interest rates in some regards and, volatility and other things that do affect rates.

But Josh, let’s talk about GDP. Let’s start there. 

[00:24:21] Josh Lewis, Expert Mortgage Broker: Yeah. So GDP is a good place to start with. And let’s remember the Fed has a dual mandate. Full employment. Price stability. So don’t want inflation too high or too low. It’s funny, price stability would be basically price is not changing year over year yet they have a target of 2% inflation, which we’ve greatly exceeded the last few years. 

But everything starts with growth. Growth in an economy is primarily measured by GDP, the gross domestic product. The Atlanta Fed, probably 15 years ago, it started a really cool tool, it’s a nowcast where every economic report that comes in, they feed it into their model and they project what’s likely to happen.

So as of July 3rd, I think they get an update tomorrow. But as of July 3rd, they were projecting 1.9% growth for the second quarter. They also show on there, the blue chip consensus. So basically blue chip economists, big economic houses, not off the wall bloggers, real people. The blue chip consensus is under 1%, 0.9 and change.

The range for those blue chip consensus is negative 0.3 to 2%, and that’s for Q2 of 2023. In the dot plots when the Fed meets, when they put out what, they only do it six times a year. They don’t do it after every meeting, Jeb, but when they put that out they don’t just say what they expect to happen with interest rates, they also put in there what they expect to happen with GDP. 

So for 2023, they expect 1% for the year. They’re right in line with the blue chip consensus. The nowcast is trending a little bit higher than that. For 24, they expect 1.1%. For 25, they expect 1.8%. So the important thing to remember there, Jeb, is generally inflation is high in a high growth environment.

So what people are saying right now is we’re gonna have stagflation. The economy doesn’t grow, but you have inflation at the same time. Really only has happened once in the history of our country. Unlikely but absolutely possible. So when you look at growth trending down, it tells you that when the economy isn’t super strong, people aren’t hiring, making more money, spending more money throughout the economy, you’re not as likely to see inflation. 

So that’s what we’re looking at. Couple of things that the Fed likes to look at in terms of inflation, they like to do, I think it’s the New York Fed, does the survey of consumer expectations. They like to see what consumers are thinking inflation is gonna be going forward.

This has dropped a ton. So the one year expectation for consumers is 4.1%. You’re gonna see that’s higher than what the fed themselves thinks. Three year, 3%, five year, 2.7%. So after a year and a half here of really elevated inflation and people feeling pain, whether it be eggs, whether it be used cars, whatever it is, people are like, This sucks. Prices go up and it’s way above my comfort level. 

 In the dot plots, the fed in their release, they they say what they project Core PCE [00:27:00] is. And core excludes food and energy cuz those are very volatile and this is what has remained stubbornly high and what they’re waiting to see get much closer to that 2% that they want before they step back outta the market. 

So their projection for 2023 as of right now is 3.9% for core PCE. Dropping to 2.6% next year, 2.2% the following year. So with that you see they’re expecting low growth. They’re expecting inflation to moderate.

And again, these guys are economists, PhD level economists with very little real world experience, but they’re as smart as anyone. We can argue with what they do with the data and how they’ve impacted the market, but they’re essentially the smartest guys in the room, right? 

[00:27:40] Jeb Smith, Huntington Beach Realtor: No. Absolutely. And you said, dual mandate, right? Full employment. One thing that’s kinda kept the fed pushing, their hawkish stance is the fact that employment has remained relatively strong throughout this whole thing. As of the latest reports, I think what 2023 average was 314,000 new jobs per month. And recently we got jobless claims data that improved, right? 

We were sitting 265,000, 275,000 claims week over week. And this last week we got an improvement. It shot down to the lowest level we’ve seen since I think October of 2022. So as soon as the data looks like it’s about to start getting worse and, you might start to see a change in some of the economic data, all of a sudden you get a rebound month over month. And that’s why we’ve seen these swings in rates, right? 

We see a quarter improvement one week. Next week we see it go up in eighth. And then it’s down in eighth. And then it’s up a quarter, and then it’s down a quarter. It’s like bouncing all over the place and people are constantly asking Josh, should I lock my rate? Should I wait and see what happens? 

It’s one of those things that until you get some certainty in the market, which there’s never certainty in the market, but at the moment There’s just so much volatility. And bad news for the economy is good news for rates. And what we’ve seen recently is a lot of good news out there in the market that half the population believes it’s a conspiracy that they’re making up the numbers to allow them to do their things.

And then there’s the other half, which I’m in the other half thinking the data looks strong, but is it really as strong as it looks out there because they’re still using the same measurements they’ve used for years, but yet the economy has changed as a whole. So are we going to see the disappointing data that they want to see in order to make those changes? Or is this the new norm? 

And that’s how we’re going to be going forward and they need to figure out how to analyze some of that data versus Just paying attention to week over week. I think there’s a lag out there in the market to some of this stuff that we’re just not seeing it reflect yet.

Cuz we get a lot of comments, we get a lot of people reaching out and it’s those real world comments where people are telling you what’s going on in their life. And again, it’s anecdotal to some extent because people are in different situations, but there’s a common theme out there that the market doesn’t seem as strong as as some of the numbers out there report. But it’s interesting [00:30:00] nonetheless. So we’re constantly paying attention to that. Josh, anything we want to add on Jobs and or the Fed? 

[00:30:05] Josh Lewis, Expert Mortgage Broker: On the jobs front there, it’s a cloudy picture. So this Friday, two days, we get this month’s job report and we’ll get a better view at it, but last month we had a bunch of jobs created on the establishment survey, and then on the household survey, jobs lost and the unemployment rate went up. So you have conflicting messages in there in the two different well established ways of collecting data.

You had talked about last week we had a really positive number with less initial jobless claims than what we had been seeing the previous three, four months, or three or four weeks I should say. But, We had the Juneteenth holiday in there. Most people don’t remember it. Don’t think of it that way.

It’s a federal holiday. Claims are not processed. This week we’ve got 4th of July, so we’re gonna have another day here without claims processed right in the middle of the week. So we wanna look at the four week average. And when you have these weird weeks, and we’ve had two out of the last three are gonna be weird weeks here, that it’s gonna be a month.

Again, I don’t want to get older, but I like data. I want to get forward to see what that data looks like. And four normal, full job weeks to see what that looks like. Jeb, probably the last thing that we get a lot, ” don’t fight the Fed, the Fed’s gonna hike. The Fed does this.”

All of that is correct and has a basis in fact. But what we need to be aware of is that the market is looking out ahead and beyond. So the market lost faith that the Fed was going to take care of the price control, price stability portion of their mandate and that they weren’t doing enough.

So before the Fed started hiking, rates started trending up. The Fed, by the second quarter of last year, got with it and started hiking. At a certain point, the market’s gonna conclude, Hey, the Fed got out ahead of it and it’s going to slow the economy and market rates will start dropping before the Fed drops. So everyone’s worried about is the Fed gonna hike more this year, it looks like absolutely, yes. 

We get a meeting here at the end of the month. Markets are expecting a quarter point at this point. With the dot plots, the last meeting they’ve told us there’ll be another quarter before the end of the year. But that doesn’t mean that rates can’t drop between now and the end of the year because at some point the market itself is going to conclude that the Fed has been successful. They have crushed inflation, it’s trending the right direction, and interest rates will start to come down. The only question is where that hits. 

Jeb, we’ve got some fun quotes here. I went through, pulled a bunch of sources. Some of them are industry sources that people will say they’re cheerleaders and we’ll dismiss that. 

But starting with First American title, their chief Economist said, I think it’s reasonable to assume that rates will come down a bit in the second half of the year and stabilize if the Fed takes its foot off the monetary tightening policy, and it looks like that will happen sometime here between now and the end of the year. 

Bank of America expects mortgage rates to fall to five and a quarter by year end. That’s pretty aggressive. That’s almost a 2% drop in the next six months. I don’t know that I would bet that, but smart people analyzing the data and seeing that.

Realtor.com expects a gradual decline that could bring rates near [00:33:00] 6% by year end. That would be a full percent, and that’s where we were back in February. Jeb, when we saw that big influx of applications. A lot of people are not comfortable with the 6% interest rate, but much more comfortable with the mid that than the mid to high sixes. 

Fannie Mae and Freddie Mac, remember, these are quasi government institutions that their economists are not doing this to cheerlead for the industry. They’re doing this to project where do we need to be for running our business for the next few years? Fannie Mae expects that rates in the third quarter will average 6.6%. We just talked we’re about a half percent higher than that. Freddie Mac is expecting with the rate of inflation, decelerating rates should gently decline over the course of 2023.

National Association of Realtors expects per the rates to progressively fall to 6% this year, and 5.6% in 2024. 

Mortgage Bankers Association expectations is rates to average 5.6% by the end of the year. 

And the last one, Rinaldi group, just another economist, rates will begin to slide into the summer, beginning a slow but relatively steady lowering of interest rates.

Jeb, I don’t think you or I, we had a little wager here and it looks like you are going to be the victor on that one with a range breakout toward the high end of the range, but not to a new high. Which is telling us that based off of the uncertainty with how strong the jobs market is, how strong the economy is and what the fed’s gonna do, the market is still looking saying, “Hey, we’re not convinced that the Fed has got out ahead of inflation and it’s time for market yields to move lower.”

[00:34:25] Jeb Smith, Huntington Beach Realtor: Good stuff. So hopefully you guys, get some value out of that. But Josh, more importantly, people want to know. Thoughts, so I’m gonna throw it your way. What do you think happens with prices? What do you think happens? You can sum it all up. Demand inventory, rates second half of the year.

[00:34:41] Josh Lewis, Expert Mortgage Broker: My expectation is that rates would have already moved lower, that we would be in the high five, low six range, and we’re about the percent higher than that. So if you look forward through the rest of the year in terms of sales volume and prices, people are basically payment sensitive. 

They’re interest rate sensitive in that interest rates are the biggest component of that, much more than home prices. So if we get a normalization to the low sixes between now and the end of the year, it will absolutely put a floor under prices.

We talked about seasonality. There’s less buyers in the market the second half of the year, less people bringing homes to market. So in terms of supply demand balance, Likely to be real similar. I would expect that we trend sideways to slightly positive. And to me, if you see one, one and a half percent appreciation from here to the rest of the year, that’s essentially flat.

If you see prices drop 1% here to the rest of the year, it’s essentially flat. So I would expect it to be flat. Continued low volume. Barely over 4 million on an annualized sales rate and until we get rates back with a five handle on them to increase affordability, increase buyer demand, increase seller supply, because those sellers bringing homes to market as they want to move up and [00:36:00] are comfortable moving up.

I think we’re going to see more of the same. Of, again, a slow market. Moving sideways, low affordability. And no one really happy with the market is. Professionals aren’t happy with the market is. Buyers aren’t happy with where the market is. Sellers aren’t happy where the market is. So I think we see more of everyone muddling through and frowns on everyone’s faces.

[00:36:20] Jeb Smith, Huntington Beach Realtor: No I’m more or less in agreeance. I think you’re gonna see a slower market. I don’t see rates doing any big changes. I think there’s just, again, too much volatility in the market. The data’s not disappointing enough to change their expectations, their forecast, if you will. But at the same time, in having this conversation and hearing you talk, a lot has happened in the first six months of this year with data, with inflation coming down with interest rates bouncing, going all over the place. We were in the fives, we were in the sevens. 

A lot’s happened in a six month time period. Which tells me a lot can happen in another six months with regards to rates. That said, I think even if we do see rates improve, which I think we are going to see rates improve, are we gonna see a five handle, a mid-five handle by the end of the year?

That was my guess towards the beginning of the year when we did this forecast is that we would be somewhere in the low to mid fives by the end of the year. I think a five handle could be reasonable somewhere, but not probably low fives. I would think somewhere 5.99%. Like 6% I think is a reasonable number. Could it go lower? Sure. But even that, Josh, I think that’s not going to increase demand enough this year to change a lot of what we forecasted so far. 

I think sales are gonna remain low. I think overall market activity is just gonna be a lull. You’re not gonna see homes appreciate, you’re not gonna see them really decline. You’re gonna see that price stability because I think demand and inventory are more or less gonna move in sync for the foreseeable future. And if you did see rates go down considerably, then you might see a big change in one direction or another, or rates go up significantly. It could have the opposite effect.

But for now, I just think we’re in this blah market which means less realtors in the business. Honestly, you’re gonna have more and more realtors quitting the business. More and more mortgage people quitting the business. Just because there’s activity out there, but there’s a lot of agents and a lot of mortgage brokers and a lot of mortgage people in general. And it’s a lot of mouths to feed with the number of transactions taking place. 

So I think with that said, not a rush to go buy a property, but I think there is some opportunities out there finding the right property buying with a little bit higher rate with the idea that at some point, you know you’re gonna get to refinance. So just my thoughts out there. 

Josh, anything we want to add to that? 

[00:38:39] Josh Lewis, Expert Mortgage Broker: Just again, continue to do your research. Know your area. Get with an expert realtor, not an expert real estate salesperson. Someone that actually knows the data, that’s following the sources. Ask them where are they getting their data from.

There are a lot of good data sources. It doesn’t have to be one. But if they’re just parroting National Association of Realtor stuff [00:39:00] or realtor board stuff, back to you, there are good independent sources of data. Same thing on the loan side. Ask your loan person, Hey, what do you see? How long have you been doing this?

What what are homes doing in your area? If they’re local to your area? What are you seeing? Where do you project? Do you own real estate? Are you selling real estate? Ask good questions. It’s the type of market where it’s not a raging green flag like we had in 2020 and 2021. It is a yellow flag.

You need to be cautious, careful, do your due diligence, make sure that you have a long time horizon, you have all your ducks in a row and you’ve done your research. I absolutely think that people can and will successfully buy in the current market, and I do think they will realize appreciation going forward without a lot of risk of a big decrease in values. But it’s definitely the market where you do your research, do your due diligence, and make sure you’re comfortable and confident with your decision. 

[00:39:54] Jeb Smith, Huntington Beach Realtor: Yeah, buy when it’s the right time in your life. And Josh, you mentioned something that I kinda wanna end on here.

If you’re talking to an agent that’s telling you the market’s absolutely great. Everything is perfect. Probably find another agent. If you find an agent that tells you it’s awful, that there’s no opportunities that you know you absolutely shouldn’t buy, it’s gonna crash. Find a new agent.

You want someone at the moment that’s in the middle. You never wanna be the guy in the middle, but at the moment, The guy in the middle is probably the most logical. If they can see both sides of what we’ve talked about today. Then I think that’s the kind of agent that you want.

And the same thing for any mortgage professional out there. And if you need a referral to either of those sources, there is a link in the description below. So be sure to check that out. And lastly, if you haven’t checked out our thoughts on a crash. Our thoughts on what’s happening with the Airbnb market. Do us a favor, check out those videos, those podcasts as well. 

There’s a lot of really good information in there that will likely help dictate what’s gonna happen in the future of housing. But with that said, we appreciate you watching. We appreciate the support. See you next time. 


[00:40:52] Josh Lewis, Expert Mortgage Broker: Amigos!

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