What’s up everyone
According to Fannie Mae, the leading source of mortgage financing in the United States, Home sales are expected to fall 16.2 percent from a year ago, a downward revision from their 15.6% forecast in July.
“Housing remains clearly on the downtrend — and has been for several months now — due to the combined effects of outsized home price increases and the significant and rapid run-up in mortgage rates,” said Fannie Mae Chief Economist Doug Duncan.
Today we’re going to look a little deeper at this article from INMAN to see how this information affects home prices, inventory and ultimately the future of the housing market.
Are less homes selling but more homes sitting on the market which would create more inventory?
As I’ve said in my other videos, we need a huge influx of inventory at one time for the housing market to crash.
So let’s see if the data will help us decide if we are heading for a housing market crash or will the housing market continue to slow down but avoid a crash.
We’ll also look at present data from Redfin and realtor.com that show a different trend than many of the crash articles suggest.
Why’ll we’re all feeling the housing correction now, could the market begin to shift and start to pick up in the fall or will it continue to correct?
Lets dive right in
Take a look at this chart provided by Fannie Mae and Inman.
In projections released Monday, forecasters with Fannie Mae’s Economic and Strategic Research Group said they now expect 5.78 million homes to change hands this year.
That would represent a 16.2 percent decline from a year ago — a steeper drop than the 15.6 percent pullback forecast in July.
“Despite a pullback in mortgage rates over the past month, recent incoming data point to a faster near-term slowdown in sales than we had expected, especially for new homes,” Fannie Mae forecasters said.
New homes sold at an annualized pace of 590,000 units in June — the lowest sales pace since the initial COVID outbreak — prompting Fannie Mae forecasters to cut their outlook for 2022 new home sales to 632,000 units, down from 668,000 in last month’s forecast.
This is not good news. There has been a lot of negative builder sentiment which has caused builders to slow down.
According to CNBC, Builder sentiment in the market for single-family homes fell into negative territory in August, as builders and buyers struggle with higher costs.
The National Association of Home Builders/Wells Fargo Housing Market Index dropped 6 points to 49 this month, its eighth straight monthly decline.
Anything above 50 is considered positive.
The index has not been in negative territory since a very brief plunge at the start of the Covid pandemic. Before that, it hadn’t been negative since June 2014.
As far as existing home sales, they are also expected to fall by 16% this year to 5.143 million. (*look at chart)
In January, before this year’s big runup in mortgage rates, Fannie Mae economists were projecting that sales of existing homes would fall by just 3.2 percent this year, to 5.945 million — which would still have been the second-best year since 2006.
Sales of new homes were projected to grow by 14.9 percent to 885,000, as builders were expected to put more homes under construction on the market.
So this is a major shift from the beginning of the year which is obviously a result of higher mortgage rates motivated by the Fed Reserve’s plan to battle inflation by raising rates.
Which brings us to the question I get asked a lot these days- where will rates go from here?
According to Inman, Fannie Mae economists think mortgage rates have peaked and will trend DOWNWARD into next year.
“Fannie Mae forecasters expect the Fed to “modestly slow its pace of tightening” by increasing the funds rate by 50 basis points instead of 75 at its next meeting in September and for the benchmark federal funds rate to peak at around 3.4 percent by the end of the year.”
Rates have been dropping slightly lately and if you look at this chart from the mortgage bankers association for 2022 Q4 going into 2023, they are projecting rates to go down even more.
However, Fed Chairman Jerome Powell has said the “Fed will be relying less heavily on policy guidance and be more data dependent going forward, meaning the risk of more aggressive tightening remains if inflation and job growth remain strong.”
So, I guess we’ll see if inflation settles a bit, rates will go down, but it continues to worsen, the Fed reserve will step in again.
Let’s take a look at what they’re saying about home prices.
As we all know, The biggest hurdle for buyers right now is affordability.
While annual home price appreciation has slowed, prices haven’t gone down as much as Fannie Mae forecasters predicted at the beginning of the year.
In January, Fannie Mae economists projected that annual home price appreciation would drop into the single digits by the third quarter of 2022.
In their latest forecast, they don’t see that happening until the second quarter of 2023 when annual home price appreciation is expected to drop to 7.8 percent.
If you look at Fannie Mae’s chart, they expect home price appreciation to go to 4.4% by the end of 2023.
So they are still predicting home price appreciation but at much lower levels.
Now, remember I always say real estate is very localized so what’s happening where I am for example is very different than in Boise or other places.
We know from previous videos I’ve done that many areas are seeing much more drastic price declines than what Fannie Mae is predicting nationally.
But, as long as inventory is tight, prices will still stay high as long as buyers can afford to get active in the market and pursue home ownership.
“We expect overall for-sale inventories to remain tight for the foreseeable future, with some relief coming from the eventual completion of new homes as move-up buyers will vacate their existing units,” Fannie Mae forecasters said. “We expect the future completion of new homes will contribute to slowing house price growth and help with affordability.”
I’m not sure we want to depend on builders to provide more inventory as we’ve seen builder sentiment has gone way down due to higher costs and more resale inventory.
I want to pivot a bit to look at Redfin and realtor.com’s present data on the housing market right now to see where the trend is going.
We’re not going to look at it all, but I thought some insight on prices and inventory was important to see how we’re entering the last quarter of 2022.
Look at the last few weeks of data according to Redfin and realtor.com.
For Redfin, This is for the week ending August 25th.
Active listings of homes for sale are up 4.3% year over year, but look at the chart and you can see the line has dropped as active listings fell 0.6% from the prior four-week period, the biggest decline since January 2022.
If you look at active listing counts year over year, you can see that active listings are up 26.2% from this time last year.
This is definitely trending in the right direction – take a look at just a few months ago in April when inventory was 13% less than a year ago.
As interest rates rose, buyers took a step back and inventory increased.
So, the question is WILL INVENTORY CONTINUE TO GO UP to balance the market and if it goes up too much at once, crash the market.
Well, take a look at the last few weeks. The trend is telling us otherwise.
In July, active listings were up over 30% since last year and that number has gone down week over week for the last 3 weeks to 26.2% for the week of august 20th.
So, there are less active homes on the market week over week for the past 3 weeks which is not trending towards more inventory.
Also, if we look at NEW listings on the market, as of August 25th, New listings of homes for sale were down 15% from a year earlier, the largest decline since May 2020 according to Redfin.
According to realtor.com, that count was down -12.2% from this time last year.
This number has increased since July 16th week over week except for the week of august 20th.
Add the number of days Homes that sold were on the market was a median of 25 days, up from 21 days a year earlier and the record low of 17 days set in May and early June.
According to realtor.com, the median days on the market has increased week over week since July 23, 2022 from 0 to 4.
And as far as price reductions, according to Redfin;
On average, 7.7% of homes for sale each week had a price drop, a record high but unchanged from the prior four-week period.
But look at realtor.com data which breaks it down week over week.
The percentage of price reductions has gone down from 112.3% in the week of June 18th to 66.8% the week of august 20th consistently week over week.
So 66.8% of the homes have had a price reduction compared to this time last year, but less homes are having price reductions week over week for the last 10 weeks consistently.
So what does all of this tell us?
If we were heading for a housing market crash- we would need much more inventory, not less. And as we have shown you, both Redfin and REaltor.com are showing less inventory each week for both active listings and new listings.
Also, if we were heading for a crash, I would think there would be more price reductions week over week, with that number increasing rather than decreasing.
Now, the lessening of price reductions could simply be that sellers have adjusted to the changing market and are pricing their homes more appropriately. We need more data to determine the real reason for the decrease in price reductions.
So, the bottom line is we may not be heading into THE Housing Market Crash that a lot of people are talking about.
A correction- for sure. And thats a good thing to bring about a more balanced market.
Things to look out for in my opinion, are employment numbers, new construction numbers, foreclosure numbers and interest rates.
If unemployment increases, builders sentiment decreases, the number of foreclosures increase and interest rates continue to go up, it will get worse.
But for now, I’m still hopeful that we are seeing a much needed correction to obtain a more balanced market and that’s it. Not 2008. Not a crash.
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