Housing Market Update - October 2023

Episode 19 • 19th October 2023 • Get Me Ready To Buy • Jeff Jones

Speaker A [00:00:00]:

Thank you for joining me for this episode of the podcast. Today's episode is the housing market update for October 2023. We'll take a look at what's happened recently in the United States housing market. Let's get after this update. As I mentioned, this is the October 2023 housing market update in the United States. Today, we're going to deal with three different myths that are going on in the housing market. We'll also take a look at inventory, equity and home prices, current and future.

1:10 - Foreclosures Are Increasing

So the very first myth we're going to deal with is the myth that foreclosures are increasing.

Speaker A [00:01:14]:

You may see in the headlines that we are seeing a rash of foreclosures coming. And technically, the headlines are correct in that home foreclosures are increasing. However, when you look at the statistical data, what you realize is those are significant increases over the Pandemic years when there was a moratorium. But we're still less than half the number of foreclosures that we were having just before the Pandemic. And here's what I mean by the stats. As you can see here in the graph, during the Pandemic years, there was a foreclosure moratorium, meaning that mortgage holders could not foreclose on the property owners and kick them out of the properties because they were behind on payments. And when you look at what we currently have in 2023 versus foreclosures of 2020, it's only half, but it is more than there were in 2021 and early 2022. However, when you go back and look at what was the foreclosures back in 2003, you can see this was 200,000 homes quarterly were being foreclosed on.

Speaker A [00:02:17]:

It got up to almost five and a half, 550,000 during the Pandemic during the housing crisis years of 20 08 20 09 20 10, we're not anywhere near any of that. So even though the headlines may be technically correct, they are misleading in what they're trying to get you to believe. I know a lot of people who bought homes back in 20 08 20 09 20 10, got good deals on them, upgraded those homes, sold them a few years later, and made some money on those properties. I have questions from time to time of people saying, hey, can you help me find a foreclosure property? Well, I can help you. Are we likely going to find something? Not very likely. I also have folks that are concerned about foreclosures and what their home could be. Any foreclosure is difficult for the homeowner going through it. Whether single family, whatever, it's difficult for them.

Speaker A [00:03:19]:

I would have a conversation with my lender if I was in trouble with being able to pay my mortgage back. I'd have a conversation with my lender about what are my options. My options may be that they can tack on some payments at the end, we might can renegotiate some things. It also may be possible for them to help you get that home sold before it goes into foreclosure. If you're facing foreclosure, your credit score, credit report is probably not in the best of shape. It's probably not the only thing you're behind on. But if you go through a foreclosure, it's going to be even worse. So try to avoid the foreclosure.

Speaker A [00:03:53]:

If you're facing that, just know that foreclosures are increasing. It's bad for anybody that has to go through it. But we don't have a level of foreclosures that we had pre Pandemic.

4:05 - Wall Street Is Buying Every Home in America

Another myth is that Wall Street is buying every home in America. There are some institutional buyers in our market that seem to be buying up a lot of homes. People are frustrated with that. How can we keep the landlords out of our neighborhoods? How can we compete with the cash offers? Back during the pandemic years, it was cash offers well above the appraised value. It just was difficult to compete against.

Speaker A [00:04:34]:

And we do have those buyers. However, let's look at the statistics and see exactly who's buying what. These ibuyers that some people say they're internet buyers, some call those institutional buyers, I'm not sure what John Burns Consulting is calling these buyers, but it's typically not. The people who go take a look at it decide they want to buy this as an investment property. They're doing it at a level not actually stepping in the property. More than likely, those investors, those ibuyers, bought a little over 3000 homes during the second quarter of 2023. These institutional buyers that own more than 1000 properties, they bought almost 2000 properties in the second quarter of 2023. Those investors that own 100 to 999 properties, they bought just under 4700 properties.

Speaker A [00:05:36]:

Those purchasers who own ten to 99 properties bought almost 17,000 properties. But the bulk of the investment purchases that happened in the second quarter of 2023 happened with mom and pop buyers who own between one and nine investment properties. That's people like me, likely people like you who are looking to supplement income, prepare for retirement, help pay off some debt, pay for vacation, whatever that may be. They're going to buy 23456 investment properties, hold those for a while, rent those out, maybe long term, maybe short term, whatever that may be. But those were the bulk of the buyers that bought investment properties. Now what were those purchases as a percentage of all of the purchases that were made. Well, the Ibuyers, out of all the purchases, the Ibuyers bought a half a percent of those properties. The institutional buyers bought 0.3%.

Speaker A [00:06:34]:

Those investors with 100 to 999 properties bought 0.7. Those a little bit fewer properties, ten to 99 bought 2.7. And the mom and pop buyers, they were 19.6% of all of the purchases in the second quarter of 2023 in the United States. Now, the rest of that, 77% or so were owner occupants. Out of all the homes sold, 19.62.7, you're at 23, another 24. So 24 or so percent of the homes that were purchased were purchased as investment properties. Almost 20% of those were mom and pop buyers. The rest, 75, 76%, were purchased by owner occupants.

Speaker A [00:07:23]:

They bought the property and they're going to live in the property. So these institutional buyers, the Wall Street buyers, aren't running us out of business. They are one of the elements who are buying properties. They have some influence on what's going on in the housing market, but they're not ruining the housing market. Now we get into what about people selling their homes? Are sellers going to put more homes on the market? Nationally, 7% of potential sellers are considering renting. They're deciding to rent their property instead of selling their property. In Southern California, 11%, where I live in the Southeast, in the Northwest, it's the lowest at 4%. So 4% in my area, depending on where you live, it could be six, 7910, 11% somewhere in there.

Speaker A [00:08:14]:

Of the sellers who are potentially selling their homes decide to rent, probably because interest rates, they're having difficulty getting their property sold. They're not sure what they want to do. Maybe it's a short term thing. They're moving away for a few years for job, but then they're going to move back to where they currently live, so they're deciding to rent instead of sell, whatever the case may be. Those are some of the purchases that some of the sales that are not happening because these sellers are deciding to rent their property out. And apartments are also having an impact on that. Apartment construction, according to the Housing Scene column, is roaring along at a 40 per year high. That means more choices for renters, likely at lower rents as everyone jockeys for tenants.

Speaker A [00:09:01]:

There is an apartment complex being built a mile and a half away from my home. It's in an area where there are no other apartment complexes. There's not even any, probably within 5 miles of where this one is, but they're putting one up here. It's in a high demand area. The rents are high, the mortgage payments are high. Tenants occupants can live in the neighborhoods that they want to live in and live in an apartment for a period of time, maybe long term, maybe short term, whatever that may be, but it's another option for folks. And these apartment builders want occupants. They want tenants in their properties.

Speaker A [00:09:41]:

New construction, home builders now back 2020, 2021, early 2022. They didn't hardly have to offer any incentives. Now they're offering $10,000 worth of incentives for people to buy their homes and move into them. The market has definitely shifted. Apartments are possible part of the solution that we have, but we don't see these institutional buyers that are Wall Street buyers that are crushing the market right now. And rental owners plan to sell properties in the next two years. That's 32% likely to sell or slightly likely to sell. 56% said they're not likely to sell at all.

Speaker A [00:10:22]:

We're not going to see, don't expect to see a huge turnover of investment properties from folks that are planning to sell over the next couple of years.

10:32 - AirBNBs Will Crash the Housing Market

A third myth that you may be hearing, not so much in my area because this isn't a thing where I live, as much of a thing as in other areas. But airbnbs will crash the housing market. There's some concern that they're going to crash the housing market because of some feel like it's creating some instability in the housing market. A short term rental survey from Realtor.com and Census wide said that 59.8% would consider renting out their current house rather than selling it if they were able to buy or rent another home in the future. So are homeowners sellers, potential sellers, going to turn to airbnbs? 60% said they would consider it. Around 20% said it would be great to have the extra income from a renter. And around 18% said the idea of owning a rental or investment property appeals to me.

Speaker A [00:11:25]:

So in talking to these homeowners about what they might do, there is some potential for it to go airbnb, to go to investment purchase properties. So you may see some headlines that airbnbs are destroying certain cities looking at short term rentals. That was the rage back in earlier this year. You can see that short term rentals to what we consider airbnbs. Back the week of June 4, there were 22,500 listings in New York City. September 10, that's down to 4600. So there's not as many of them available right now. Maybe many of those were gobbled up and these just weren't gobbled up, but there's not as many on the market being available right now.

Speaker A [00:12:08]:

And the flip side of the issue with our airbnbs destroying the housing market, the state of Arizona passed a law that bans all of its cities and towns from capping their number of short term rentals. At the start of 2023, Phoenix had over 20,000 short term rental units and all that competition has led to many of them sitting empty for weeks at a time. They're not getting rented out as much. Don't think it's going to kill the housing market. Nobody really expects that it is going to make some adjustments to the airbnb market that might not be as lucrative as it was, at least in some markets. So we talked about those three myths. Are we going to see a rash of foreclosures? Are the Wall Street buyers killing the housing market, and are the airbnbs killing the housing market? All of those? We looked at data that shows that those are sort of myths. They're not likely to have as a significant impact as the headlines would want you to believe.

13:49 - Inventory

So what's really going on in the housing market as of October 2023? Let's take a look at inventory. What's happening with inventory? Jeff Tucker with Zillow said that what we didn't expect, especially considering seven plus percent mortgage rates, was more new listings. Having more listings come on the market across the nation. I'm sure there are some markets around the country that are seeing a depressed number of listings, but there's not many of those. When you take a look at what's happened since 2017, you can see all these lines here with 2017. The light gray and the dark gray are 20, 17, 20, 18, 20, 19 are the grays. We had more listings then than we've had in 2020.

Speaker A [00:14:35]:

And you can see this. 2020 is the dip that you see in April. That orange is a dip there from 2020 when COVID hit and everybody pulled from the market. But by the end of May, we were right back up to where we had been in early March with a number of listings that are out there. And what you see, this broad blue line at the bottom is this year. And in August, you can see that it was actually up a little bit over July. We saw an increase. Hardly any of these other I can't see any of the other lines on here where from July to August it increased.

Speaker A [00:15:17]:

They all continued to decrease. Now we're seven and a half percent new listings below where we were this time last year in August of 2022. But we saw an uptick in August. Not sure what September is going to reveal for us when we get to the September numbers and the October numbers, but we did see an uptick in August from July, the number of listings, and we're talking about mortgage rates, we're not going to dwell on the rates, but they do have a little bit of an impact. And you can see that 26% of homeowners that have a mortgage currently have a rate of three or less than 3%. 44 and a half percent have a rate of three to 4%. That is, 70% have a rate of 4% or less, 20% up to 5%, 5% to 6%. That's 5.3% of the mark of the owners with mortgages and 3.7% have a greater than 6% mortgage rate currently.

Speaker A [00:16:23]:

What that's talking about? What that has an impact on is it has an impact on new listings because people with these lower mortgage rates aren't as likely to sell. So these lock in rates limit new inventory. The current loans with the mortgage rate at the time of origination, if they've got a three or less percent, they're not selling three to 4%, they're probably not selling those that have four to 5%. They're going to think really hard about selling their home before they actually sell it. You'd see some of these with higher rates that are more likely to sell. That's going to shrink the number of homes coming on the market because more people are choosing to stay in them because they've got their rates locked in. So low mortgage rates tend to be less relevant to older homeowners. One in 4% us.

17:19 - Equity

Homeowners say high mortgage rates wouldn't impact their decision because 43% of them won't need a new mortgage. They have enough equity in their home that they'll be able to sell their current home and pay cash for their next home. More than likely they would as older owners. They're likely downsizing, moving to an area, be closer to kids, especially closer to grandkids. I understand that. Or maybe moving into some type of assisted area, something with a smaller yard, a smaller house. They're empty nesters or older singles living alone. They're going to be able to pay cash for their home when they buy it.

Speaker A [00:18:00]:

They don't need a mortgage, so they're likely to consider selling. And the mortgage rates don't have any impact on that. 35% of baby boomers said they're not impacted by that. 23% of Gen Xers, 14% of millennials, and 20% of Gen Zers aren't impacted. Or that the mortgage rates are less relevant to their selling decision because of equity. And let's take a look at this across the nation in the past five years, through the second quarter of 2023, the national average of appreciation equity growth is 57.3%. I live in Mississippi, it's 47.5%, not equity. But their change in housing prices, they've gone up in Tennessee, I'm just outside of Tennessee, that's 76.1%.

Speaker A [00:18:58]:

Housing prices have gone up. You can see California the last five years, 47 and a half percent. New Hampshire 72.3. Florida, 80.9%. That's what housing prices have done in the last five years. Now let's take a look at a different map. What's happened since the first quarter of 1991 through the second quarter of 2023, the national average is almost 298% that it's gone up, meaning $100,000 home in 1991 would be a $300,000 home in second quarter of 2023. 300% is what that would have almost 300% is what that would have gone up.

Speaker A [00:19:46]:

Mississippi for me is 200%. Tennessee, 345. California, 304. Florida, 436. Oregon, 512. We can see that there is going to be a lot of equity for hoax owners who have owned their home for several years. They've got a lot of equity built into it because they've been paying their principal down plus their home prices, and the value of those homes has steadily increased. Real estate was a good investment in 1991.

Speaker A [00:20:18]:

If you want to cash out now, invest $100,000. You'd have $300,000 now across the nation as an average. Maybe more, maybe less. So here's what we're looking at. Mortgaged homes with more than 50% equity, and that's going to be this 30% line, that dark green 38.7%. That's people who own their home free and clear, whatever they sell it for is theirs. 20.8% have 30% to 50% equity, 8.6% have ten to 30% equity, and you can see what the rest of them are there. So almost 69% have either paid off their mortgage or have at least 50% equity in their home, meaning they're going to have some money to purchase a home when they sell that home.

Speaker A [00:21:14]:

According to CoreLogic, the second quarter equity report, the average US. Homeowner now has about $290,000 in equity. Wow. That may not completely buy a home, but it will go for a long way in buying a home, at least in our market. There are some new construction homes that you can get in for under $300,000. And by the time you add the owners or the builders incentives, by the time you add the builders incentives, they wouldn't need much more than 290 to be able to purchase that home and pay cash for it. And that would be a brand new construction. Home may not be built as well as a home built 20 or 30 years ago, but it's still a brand new home.

22:05 - 3 Major Advantages to Having That Equity

Three major advantages of having equity number one, the ability to be an all cash buyer. Number two, the ability to give a larger down payment. You might put $200,000 down on a $400,000 house. That's going to go a long way in decreasing your monthly payment and possibly getting you a better interest rate because you're not borrowing as much. The bank, the lender is not in as much risk, and you're able to have access to assisted living residences. We're facing that with my mother and my mother in law. They're getting older. Neither one of them are going to be moving into an assisted living facility anytime soon.

Speaker A [00:22:42]:

Matter of fact, we're about to begin construction on a wing for my mother in our home. And at some point I'm sure that my mother in law will be with us because we're going to take care of them as best as we can. But the cash that you have that they would have when my mom sold her home, she's able to pay cash, all cash for this build and still have plenty of cash left over to enjoy life. But that's going to give an opportunity for these sellers, because of that equity, to be able to decide on their own where they want to live out the rest of their days. What is all this having to do with current home price appreciation? It has some impact on it. Home prices aren't falling anymore. The surprisingly quick recovery suggests that the residential real estate downturn is turning out to be shorter and shallower than many housing economists expected after mortgage rates soared last year. That was from Wall Street Journal.

Speaker A [00:23:42]:

This recovery was during the COVID years and also during the early part of 2022 when mortgage rates started skyrocketing. Because of the Fed adjusting their rate and what they were doing in the money markets. It had an impact, but we're not seeing those home prices decline anymore. According to John Burns Consulting, from January through August, housing demand stabilized, resulting in relatively stable home prices. By August 2023, national resale home prices fully recovered from the declines experienced in the second half of 2022 and now exceed their April 2022 peak. I know in DeSoto County where I live. It's north Mississippi. Our median just did a report earlier this week on it.

Speaker A [00:24:35]:

Last week, our median sale price was $325,000, meaning half sold less than that and half sold for more than that. That's the highest it's been that I've ever seen. That's been recorded. The previous high was 320. That happened last month and it happened back in 2022. Then they started going down. We've now surpassed that Shelby County, which is where Memphis is. They're not at that peak anymore, but they are still considerably higher.

Speaker A [00:25:06]:

We're still seeing those rates go up. Overall, it appears the reduction in supplies outweigh the decrease in demand. Thus house prices have started to increase even as sales have fallen. That's from Freddie Mac. In the mortgage market outlook, we say a balanced market is six months of inventory. Currently, in the county I live in, we have, I believe, 2.3 months of inventory. And in Shelby County, just the county north of us, we're at a little over 3%. That's still considered a seller's market.

Speaker A [00:25:41]:

Now, it's not as much of a seller's market because there's not as many buyers looking because of the interest rates, and they're unsure about what's going on in the economy. It's having an effect on it, but it is not depressing prices. Across the board, you can see these three major evaluators case, Shiller, FHFA and CoreLogic. They all show a decline in housing prices from July of 2022 to January of 23. That happened across the board. We saw home values ramp up in 2022. And now we're still seeing these home prices. They're green, meaning they're more than they were the previous month.

Speaker A [00:26:26]:

Those increases aren't as high as they were. Like CoreLogic. July was 0.4 and June was 1.6k. Shiller, June was zero seven and July was zero six. FHFA saw a reverse. They saw a 0.4% increase from June over May and a 0.8% increase from July over June. All this to show that our home values are still increasing. We thought the end of last year we were going to see a downturn.

Speaker A [00:27:01]:

How long would it last? It didn't last very long. Here's another Zillow, Black Knight and Freddie Mac. They're all still showing home values are increasing month over month. So far in 2023, we're not seeing them go down. You can see regionally national rate of appreciation is 0.8%. And that's month over month. And you can see what's happened in the Pacific or the East North Central at 1.2. The Mid Atlantic or the South Atlantic, 1.4% month over month, home prices are going up.

Speaker A [00:27:35]:

That's what all this is saying. The top 20 cities that Case Jiller takes a look at, they've all seen an increase. People wonder what's going on in California and Los Angeles, 1.1% increase in July over the previous month. You can see in Phoenix, 1% increase. San Diego, 1.5% increase. Seattle, the whole West Coast, if you're looking at national news that I follow, is the whole West Coast is going crazy. We're still seeing home price on the West Coast increase. If you're in markets.

Speaker A [00:28:09]:

Boise has been taking a hit. New Orleans is taking a hit, and so is Austin. Those home prices are not keeping up right now, but those are the anomalies that's happening in a few markets around the country. But what we're still seeing is home prices. Home values are still increasing. What are they going to do in the future? Who knows? But let's take a guess anyway. According to CoreLogic, high mortgage rates have slowed additional price surges, with monthly increases returning to regular seasonal averages. In our market, that's about 4%.

Speaker A [00:28:46]:

In other words, home prices are still growing, but are in line with historic seasonal expectations. The 49 year average monthly price movement. You can see what they typically do. The summer months are months when more people want to move. So obviously there's a greater demand for homes. There's more buyers on the market. Home prices are going to go up. They still increase, but not at that same rate as you get into the fall of the year.

Speaker A [00:29:19]:

How about month over month? That 49 year average versus 2023. We did see a decrease in January from Case Schiller, but you can see that the rest of the months, once you get into March, up through July 2020, three's movement was greater than the 49 year average. Home values are still increasing. Can't say that enough. Nevertheless, home prices are still expected to reaccelerate and reach mid single digit growth rate by the end of the year. According to CoreLogic's latest HPI forecast, the rest of the year forecasts, the average of all six of these is 3.3% increase by the end of the year. We're still seeing values go up. We mentioned that HPI, there was a nationwide panel of over 100 economists, real estate experts, and investment and marketing strategists that weighed in on all of this.

Speaker A [00:30:24]:

And their expectation is that we're going to see not as high of a rate of increase in 2024, but it ramps back up into more seasonal than what it's been normally before we hit the pandemic. And you might be thinking, oh, that's not great because we saw double digit increases in 2021 and part of 2022. That's a good thing. It's slowing down those home prices because those homes that were selling for $300,000 in early 2020 by that same home, if it was put on the market in 2022, would have been 20% to 40% more, which means that that could have been $60 to $100,000 more. That $300,000 house could be $400,000. That's what's pricing a lot of buyers out of the market. So a slowdown in the appreciation helps let all the rest of the market pieces catch up to where buyers have a better opportunity to purchase property. So what does all this mean for you if you're a buyer? Home prices are more than likely not going to get better down the road.

Speaker A [00:31:44]:

There may be some dips in some markets, and who knows what could happen right now there's a war going on between Israel and Hamas. Who knows what that's going to do? I tell people all the know, here's kind of what we expect to happen in the housing market. However, we don't know what Washington, Russia, China, or the CDC is going to do. We don't know what they're going to do. Any of those could throw a monkey wrench into all those plans. If you looked at what the expectation was in January, February of 2020, that's not how the year ended because of this COVID pandemic that we had. So the best thing that we can do is kind of forecast what's going to happen. We don't see home prices crashing again.

Speaker A [00:32:27]:

Anything can happen, but we don't see those. So if you're a buyer, you're not going to get that home at a better price than today. If you can afford the payment, whatever the interest rate is, if you have the money saved up to make your down payment, consider very seriously making a buy now. Especially if you find the home that you want with what you want in it, where you want it, now may be the best time for you to buy. Now may be when you need to wait to buy. Only. You know that. Having a conversation with your lender, with your real estate agent.

Speaker A [00:33:06]:

If you don't have one, I'll be happy to have a conversation with. You or find one in your local market. If you're thinking about selling you're a homeowner, you still might want to sell because buyers are still hungry. Buyers are out there looking. If you own investment property, you may want to sell. We need some more homes on the market to bring some more competition out there to draw some buyers out. Plus with what's going on with the rents and things, you may decide that you want to cash out and get that equity where you bought that investment property five years ago. You've got 30, 40, 50% equity now in that home built up into it.

Speaker A [00:33:48]:

You've paid off some mortgage because that renter. The tenant has been paying that mortgage for you. So you've captured the principal that's been paid down plus the appreciation. You may want to cash out. The point is, don't listen to all the headlines. Make a decision that's best for you and whoever you're buying or selling with. Have a conversation with the professionals in the industry. Reputable real estate agents and reputable lenders will not try to get you to sell or to buy just so that we can earn a paycheck.

Speaker A [00:34:27]:

That's not why I do it, that's not why I'm here. My bottom line is helping you have all the information you need to be confident in your home selling or your home buying decision, whatever that may be. Look at the facts, not just the headlines. Peek behind the curtain to see what's right for you in your market at this time.

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