Market Update - July 2023
Market Action Index - July 2023
I find myself wanting to journal about the market versus writing an actual market report because its so frustrating. I truly feel like a broken record, but it’s not a healthy market by any stretch. I want better for my clients; I want better for families; I want better for my community, and I want better for our country. Alright, that’s enough from my ‘journal’ entry for now.
Market Profile - July 2023
Median home prices have actually dropped from last month. I think we’re feeling the effects of really high interest rates and an uptick of uncertainty. Buyers are now sitting and waiting to pounce. I think most buyers have figured out there won’t be a crash. They’re happy to wait out the interest rates to get in, even if that means they’re paying $100K more on the same property in 6 months. Days on the market are down, inventory is up (albeit slightly), and median rent had a huge jump of 6% month over month. Median rent is now $4,250… that’s more than my mortgage. There doesn’t seem to be any signs of that slowing down.
I had a post recently explaining that historically speaking, rates have averaged just under 8% since we started tracking the data in 1971. The difference is that home prices are approaching all time highs again. What’s important to you, as it is to me, and any other normal family, is what your monthly payment comes out to. It’s all about perspective. Rates will come down. There’s no question about it. Wages growth is now outpacing inflation (Figure 4) for the first time in two years. That’s a big change. One of the things that is keeping interest rates from coming down is the jobs report. We continue to add jobs in the economy. The other big change that is starting this fall is the student loan moratorium will come to an end. This means loan payments will be due again. However, there’s going to be an on-ramp period if you can’t make your payment. This means that during this time, payment will be due and interest will accrue. However, borrowers will not incur late fees, penalties, or negative credit reporting for missing payments. This poses a problem because the money that should be going to those payments (that’s been on hold throughout Covid) may now be spent on goods and services. This continues to stimulate the economy and prevents inflation from dropping as quickly.
“Median rent is now $4,250… that’s more than my mortgage. There doesn’t seem to be any signs of that slowing down. ”
Total Jobs continue to Rise -July 2023 (Figure 3)
I hate to belabor the point, but the hang up is interest rates. We need them to come down to loosen up this market. I’m predicting once they start to come down, prices are going to jump higher and higher until current homeowners that are thinking of selling can’t ignore the cash out any longer.
Employment is going to play a big part in decreasing interest rates, because it’s so directly related to inflation and distressed selling.
The FED is dead set on squashing inflation, even if it puts us into a full-fledged recession. More on interest rates and all the factors that are affecting them below.
HOT TOPICS
Mortgage rates - The FED didn’t raise rates at the last meeting, but after the jobs report and CPI data on inflation, the expectation is that the FED is going to raise rates again .25 - .50 point this month. They have raised rates 5% since last March. All in effort to curb the highest inflation in 40 years. Currently, rates are over 7% again on average.
Strong jobs report - Jobs continue to be added and there’s a total of over 4 million jobs than there was before Covid started. Keep that in mind, especially as the media headlines are dominated by reports of massive job loss. Jobs are a big part of what’s holding up inflation and subsequently interest rates.
Student loans - Just like jobs, student loans play a huge factor in monthly affordability. Anyone who has outstanding loans to pay will be impacted when the moratorium ends in September. As I mentioned already, lendees will be allowed to skip payments with no penalty or dings to the their credit, although interest will still accrue. This affects interest rates in two ways. One, this stimulates the economy because those dollars go to goods and services and not to debt. Two, debt is a major factor in your debt to income (DTI) ratio. If you’ve got student loan debt, it’s going to dramatically affect your budget when it comes to buying a home.
Homeowners Insurance Issues - This is a major issue that has come to light as multiple insurance carriers have decided to stop writing homeowners insurance policies in California for the immediate future. The worry is that others will join All State and State Farm in declining to insure homeowners. This issue is ongoing and will be closely monitored by all, but especially homeowners both future and current. For now, be aware this could affect your auto insurance as well. My advice is don’t try to change insurance carriers or plans, and make sure you pay on time. Do not give any of these carriers a reason or avenue to cancel your coverage.
Wage Growth vs. Inflation Graph - July 2023 (Figure 4)
I think more than ever, we just have to put our heads down and continue to grind. Everything is going to get better, but it’s not going to happen overnight. To some degree it feels like we all just need to figure out a way to survive; thriving will have to wait for another season of life. That being said, there’s still lots of opportunity out there. I would pay particular attention to new construction, because builders may have some opportunity to push some promotional interest rates. It could be the difference between getting into a home now and having to wait until next year. Have a wonderful July, I know my family and I are loving the sunshine. I’m here to help you with whatever you need. Call/text/message me :)
Brendan
P.S. I live on referrals (and will love you forever) if you send someone my way. It’s among the greatest compliments I can receive. I will treat them like family. Thank you in advance!
Brendan