Has the Market Hit the Bottom? | Guest Post
Headlines are celebrating as NARs pending home sales turned a corner, up 2.5 percent month-over-month in December. Existing home sales also brought good news as they seem to be tapering an 11-month trend of declining sales. In addition, January NAHB builder confidence also turned positive for the first time since December 2021. So is that it? Have we hit bottom? We’ve been hoping for this day since March 2022, when buyer demand crested and the housing market painfully stumbled into a recession. Will we look back at mid-January 2023 and say, “while the economy slid into its recession, the housing market was coming out of theirs”? I want to say yes, but it might be too early as it takes several reports to claim a trend.
Let’s celebrate the wins when we get them! DMAR Realtors® have been talking about buyers coming out of the woodwork and back into pipelines. Stale listings from 2022 relisted, are selling in the first weekend and have multiple showings and offers. In addition, DMAR’s January data confirmed that all that snow didn’t put a freeze on the market.
Pending home sales jumped 51 percent from last month. Still down 8.5 percent from last year, but blame that on inventory, not demand. Mortgage purchase loan applications jumped 29 percent in just two weeks in mid-January as rates settled down from 7.25 percent to an average of 6.125 percent.
Inventory is dropping as new listings are getting gobbled up. New listings were up 65 percent month-over-month, but active inventory at month-end was still down 13 percent, wrapping up January with 4,120 homes for sale. With 37 percent of all homes paid in full and an astounding 86 percent of homes locked in under 5 percent, sellers who took advantage of low rates from 2020 through 2022 (because they could) will only list now if they need to.
Home prices adjusted down 3.33 percent from December as close-to-list also moved lower from 98.42 percent to 98.15 percent. In January, closings more than likely went under contract during the holidays when committed sellers did what they had to in order to sell. Those buyers knew they had the upper hand on negotiating opportunities. Educated buyers who got out early this year also had the upper hand in negotiations. Until they didn’t. As this year has progressed, stories turned from sellers paying for rate buydowns, inspections, and price reductions to now having 45 showings and ten offers. Expect to see home prices adjust slightly again in next month's report as the closed data lags. If we do see a pop in new listings to meet buyer demand, prices will continue to be soft. If new listings do not keep up (and I do not expect them to), this year’s buyers will keep home prices stable and to the positive. We ended 2022 with a 12 percent median price growth. All of it gained in the first quarter. Comparing to Q1 2022, this first quarter will be negative, but watch the month-over-month trends as buyer demand picks up with any drop in mortgage rates.
Speaking of rates, we are not out of the woods yet. Fed Chair Powell raised the Fed rate by 0.25 percent to 4.5 percent - 4.75 percent, noting that while inflation has shown a welcome pace reduction, we need substantial evidence to be confident that inflation will remain on its downward path. Powell also noted not to expect a rate cut. Yet went on to say, “If we do see inflation coming down much more quickly, that will play into our policy setting, of course.” Implying a rate cut is ultimately possible. So which is it? It’s dovish; that’s what it is. And the markets liked it.
The thorn in Powell’s side is still employment. Initial jobless claims (i.e. new unemployment claims the previous week) haven’t been lower since 1969. 332 million people are living in the United States right now. There were 202 million in 1969. Think about that. 186,000 Americans filed for unemployment the last week of January. That same number of humans applied in March 1969. Saying the job market is tight is an understatement. The January Jolts Report also surprised the market by jumping above 11 million job openings again. That means there are almost two jobs (1.92) for every unemployed person. This is keeping wages high. Per the ADP report, job stayers’ wages increased 7.3 percent, flat from last month. Job changers? They got a 15.4 percent increase in pay.
While people are still employed or getting laid off and re-employed quickly, the housing market will remain strong. Even as home prices softened, only 2 percent of all homes are underwater. Only three distressed sales last month. Most homeowners are locked in with low rates and low monthly payments. Plus, affordability will improve as wages continue to increase and home prices flatten.
This market can be confusing, stressful and exhilarating! Requiring us to be on top of our game to take advantage of every opportunity to fully support our buyers—especially the first-time home buyers who have been priced out and then feared out of the market. Now, is their time. Because, even as the economy slows and goes into its recession (or soft landing), I am afraid for those first-time home buyers sitting on the sidelines that in 10 years we will look back and realize the seemingly astronomical prices today were actually a bargain.
Until next time, this is Nicole Rueth with the Rueth Team, powered by OneTrust Home Loans. It’s my pleasure to keep you updated.
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