Pending Home Sales
Has August and September seemed a bit less productive than previous months or years? If so, you’re not alone. NAR claims that pending home sales decreased 7.1% for the month of August, which equates to an 18.7% year-over-year drop.
“Some would-be home buyers are taking a pause and readjusting their expectations about the location and type of home to better fit their budgets.”, says Lawrence Yun, NAR chief economist.
Given that mortgage rates have been rising above 7% since August, I think it’s safe to assume that housing demand if finally beginning to cool off. Is this a good thing?
With the drop in housing demand like we’re realizing recently, it can be good for prices because as we slowly shift to a buyer’s market, the buyer will have more negotiation power. However, housing inventory levels are still near all-time lows and potential sellers have the benefit of leveraging all-time low mortgage rates. With that, we can expect the shift from seller to buyer’s market to take some time.
Home Sizes Are Shrinking
The number of new construction homes built with at least 5,000 square feet are down 12% between 2021 (33,000) and 2022 (29,000). Considering interest rates, material costs and supply chain obstacles since the pandemic, this statistic shouldn’t come as a surprise.
While the number is down, it does not appear to be significant, given the relative comparison to 1999 – 2020. The number of new homes started with 5,000+ square feet in 2022 is still more than double the number of new homes started with 5,000+ square feet in 2010; only 2 years after the 2008 subprime mortgage crisis.
Government Shutdown
Yes, we’re there ….. again. Speculators didn’t seem to be as worried about the deadline in June. However, the shutdown odds grow as Senate, House advance separate spending plans” as Reuters put it ever so eloquently today. The dark cloud of the U.S. debt ceiling continues to loom over us.
Fun Fact: There have been 14 U.S. government shutdowns since 1980, which is with the U.S. Attorney General ruled that federal agencies must stop operating if they don’t get funding from Congress. The longest government shutdown in American history was for 34 days (2018).
More importantly than rates, a government shutdown can result in tens of thousands of federal employees to be furloughed and sent home without pay, members of the military and federal law enforcement would be required to continue working without pay, national parks and airports may be forced to close or experience delays and disaster relief funds may be exhausted (FEMA).
Wrapping Up 2023
As of today:
· Jobless claims are up (204k actual vs. 201k previous month)
· Pending home sales are down (-7.1% actual vs. 0.9% previous month)
· Fed Interest Rate Decision HOLD (5.5% actual vs. 5.5% previous month)
· 10 Year Treasury spikes to 4.688 – highest since November 2007
On the bright side, industry professionals are beginning to agree that we are in the homestretch of the current economic / housing dilemma. Are we in the 7th inning or 9th? Only time will tell, but we do seem to be getting closer to the days of better rates and better housing inventory levels.
In the meantime, there is no magic solution for those experiencing less than stellar production numbers.
If you're a lender or real estate agent, this is a great time to reconsider your processes, strengthen your existing client and referral relationships, and enjoy the upcoming holidays. Because we all know that with consideration being given to the events over the last 3 ½ years, anything can happen.
Semper Fi,
Terry
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Terry Roberts, USMC Veteran Sr. Mortgage Broker NMLS 397987 E Mortgage Capital, NMLS 1416824
Terry Roberts is a U.S. Marine Corps Veteran and specializes in residential mortgages, including new construction, conventional, FHA, and VA home loans. He has helped more than 10,000 clients start the home buying process across America.
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