Last Updated on March 30, 2023 by Luke Feldbrugge
Welcome to the Housing Market Trends April 2023 monthly update from Homes for Heroes. This report focuses on the residential real estate housing market and we attempt to provide useful information to assist our heroes with decision making regarding buying and selling a home, or refinancing their mortgage.
Summary: Housing Market Trends April 2023
- Interest rates are going up in response to inflation.
- The spread between mortgage rate and the Fed’s 10-Year Note are untraditionally high.
- Housing inventory is still quite low
- New homes builds are also lower than industry averages
- The real reasons to buy a home make more sense than ever–rent, equity, ownership and stability.
- Sellers Market: Sellers have a lot more equity than they know.
High Interest Rates: Housing Market Trends April
We are still feeling the exhaustion over last year’s high mortgage rates. With the fastest rise in interest rates in the history of interest rates, we were all looking forward to a calm year where they would stabilize and maybe even ease a bit. There were even signs as mortgage interest rates dipped a bit near the end of 2022.
That didn’t happen. In response to ongoing high inflation concerns, the United States Federal Reserve Bank and Chairman Powell have continued to raise interest rates because…what else can they do? With current market conditions the mortgage interest rate is just a bit over 7%. That’s bad news for buyers because it makes it more expensive to buy a home. It’s bad news for sellers for the same reason. It’s sort of a large wet blanket for the whole real estate industry.
The spread between the Fed’s 10-Year Treasury Note and actual mortgage rates also remains high. The two indicators follow each other quite closely…
But there is usually a gap between them where the mortgage rate is higher than the 10-Year Note. Typically this gap, or spread, is 1.7%. Right now, however, the spread is averaging about 2.7%, which makes the mortgage rates even higher than they would usually be (by a full point). In fact, at the beginning of March, the spread was up to 3%. The biggest reason for a large spread is fear and volatility in the housing market, although Forbes says otherwise.
“The option for homeowners to refinance their mortgages makes mortgage-backed securities an inferior investment option. So investors will buy them only if they offer a premium over treasury bond interest rates. That is the wholesale mortgage spread.” Forbes, March 14, 2023
Whatever the case, we can all hope that both the interest rates and the spread go down in 2023.
Variations on the Mortgage
Mortgages come in all shapes and sizes. The industry standard has been the 30-year fixed-rate mortgage. It makes a monthly mortgage payment approachable for a lot of people, but especially first-time homebuyers With the interest rates increasing, however, alternatives are starting to spring up again.
The adjustable rate mortgage is one of these alternatives. During the housing crisis in 2008-2009, they got a somewhat negative reputation because they were used to convince people they could afford a house that was out of their reach. Now however, with more safeguards in place, folks are revisiting the ARM. With an ARM, your initial mortgage interest rate is lower and more affordable than the current rate, but it can go up or down (depending on where interest rates land) a few years into the loan. ARMS are an option to consider with mortgage rates increasing, but buyers should approach these loans with caution.
If you can afford to, you can also buy down the interest rate on your loan at closing. When you buy down, your lender will lower your interest rate for the life of the loan if you pay extra cash at closing.
You also don’t have to go with the 30-year mortgage. If you elect for a 15-year mortgage (or lower), you will get a discounted rate but you will have higher monthly mortgage payments. Right now the difference between a 30-year and a 15-year mortgage is about 1%.
Housing Market Trends April: Inventory
The inventory of available homes is low and not projected to get any better. When doing comparisons, it’s probably best to ignore the pandemic years because during that housing boom we saw historically the lowest level of inventories. The number of homes have, however, not recovered much.
With about half the number of houses for sale that we had before the pandemic, potential buyers are really feeling the shortage. There was some hope that, with fewer buyers in the housing market, that inventories would recover. We saw some of that last year, but it didn’t last. They dropped even more in the previous months of 2023.
With the fewer homes and demand strong, the logical answer would be to build more new homes. That isn’t happening either. As this chart shows, we’ve never really recovered from the housing crisis in terms of building new homes. We have had 14 straight years of lower levels of new homes being built. That takes its toll.
Should I Buy or Should I Wait?
We haven’t painted a very rosy picture of the housing market if you are a buyer. In fact, many buyers have just completely dropped out, so there is less competition. If you are a buyer looking for a plus side to all of this, you might look at housing prices. They are projected to go down by a bit–predictions for lower house prices range from 1% to 2.7%. That’s not much, considering how much home price growth went up during the pandemic. But it does mean that real estate prices are stabilizing and may be for the foreseeable future.
Homeownership: Return to the Fundamentals
If you can afford to buy a home now, keep fighting to get one. Historically we have low mortgage rates –even after last year’s spike. With home prices stabilizing, this may be a good time to make a calm, rational decision to buy a new home. It’s always good to remember the fundamentals of home ownership.
- Rents continue to climb. If you are a renter, that monthly bite into your budget can be turned into a monthly investment in equity.
- Over time owning a home can increase your net worth. According to our friends at the Federal reserve, in 2019, homeowners in the U.S. had a median net worth of $255,000, while renters had a net worth of just $6,300. That’s a difference of 40x between the two groups.
- During the last 20 years, beginning in 1991, home values have increased 54.4%. The pandemic housing boom, however, blew those numbers out of the water. In the past 5 years, those same homes increased in value and average of 258% (according to the FHFA).
This is why you need to keep fighting for that house you want if you find a good deal and afford to do it right now.
Message to Sellers
The good news is it’s still a seller’s market, with high buyer demand and dropping inventory levels. Sellers won’t get the price spikes or bidding wars we saw in recent years, but it’s still a strong time to sell. A lot of retired folks, or those approaching retirement, are looking to downsize their homes. This is a good time to do that and lock in all your gains of the last few years.
That’s the real story for homeowners right now: equity. People who have owned their current home for a while have built up a lot of equity–and many don’t even realize it. The average equity for homeowners is currently about $185K and that’s a $48K increase over 2021.
Remember, you can contact your real estate agent and ask for an equity assessment report. They will walk you through it.
Save Some Money with Homes for Heroes
If this Housing Market Trends April 2023 report motivates you to fight it out and get a new home, we at Homes for Heroes want to fight it out with you. If you’re a firefighter, EMS, law enforcement professional, active or veteran military member, healthcare professional or teacher, we can help. We have been doing it for more than 20 years. Our real estate and mortgage specialists in your area will work with you to find the home you want and help to get you the mortgage you need. If you close on a home with your local Homes for Heroes specialists you can save an average of $3,000, or $6,000 if you buy and sell! Simply sign up today to learn more about how our specialists can assist and save you some money in the process.