Last Updated on April 27, 2023 by Luke Feldbrugge
Welcome to the Housing Market Trends monthly update for May 2023 from Homes for Heroes. This report focuses on the real estate trends for 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.
Housing Market Trends May 2023
This month we are going to examine and explain, to the best of our ability, these factors in the real estate market:
- Housing Prices
- Affordability: what it is
- Affordability: why it’s so local
- Affordability: approaching the threshold
Normally we lead off with a discussion about mortgage interest rates. If the previous year taught us anything, it’s that rate hikes are insanely hard to predict. We thought higher mortgage rates peaked last fall, then they had another slight increase early in 2023. Now the average rate seems to be drifting back into the low 6% range, which is the right direction for the real estate market. We are hopeful about the next year.
Sam Khater from Freddie Mac is also optimistic about lower mortgage rates, at least in the short term.
Let’s take a look at the other factors driving the real estate world.
The Housing Price Crash That Didn’t Happen
If you are interested in selling your current home, house prices are very important to you. If they are rising, it’s very encouraging, but if they are falling, you may drop out of the market for fear of losing money.
Last fall, some real estate experts and economists were predicting steep drops in housing prices. Headlines were predicting 20% drops in home values and forecasting disaster for sellers. That caused lots of hand-wringing and panic, which is great if you are trying to get people’s attention.
But it didn’t happen.
If you read the fine print on some of these housing price crash predictions, they would say that the drop would happen only in some areas of the United States, namely cities on the West Coast. They were hedging their bets.
What really happened was:
So housing prices did not, we repeat not, plummet. In fact, they went up by 3.8%. If you’re a seller who dropped out of the market, maybe canceled your listing, you may want to think about calling your real estate agent. It might be a good time to return to the market and resume your plans.
Affordability : The 3-Legged Stool
On buyer’s side, affordability is the issue. Can they afford to jump into the market, or back into the market, and get a new house. There are glimmers of optimism out there.
The three legs of the affordability stool are: interest rates, prices and wages. Those three things determine if a house, or houses in general, are affordable.
As far as interest rates are going, the phrase everyone is using is that this “is a rate sensitive environment.” That means we are sure what’s going to happen with rates. Last year’s history-making rate spike left everyone shaken. Any changes to the interest rates are being watched very carefully. It looks like they are easing, and may gradually decrease, but right now it’s anyone’s guess.
In terms of home price growth, we’ve already talked about that. The median home price is going up, a bit, depending on where you live. The good news is, if you are a buyer, they aren’t going up at the record levels we saw in recent years during the pandemic.
The final leg of the stool, wages, is the most optimistic factor. Wages are going up and that makes single-family homes and monthly mortgage payments easier on folks’ budgets.
This chart shows that past year was rough, but there is hope. That blue line at the end of the chart is a very good sign for new home buyers. Just remember that affordability is multifaceted, and if you only look at one set of numbers, you are missing the bigger picture.
All Affordability is Local
For example, affordability is also geographical. We already talked about how higher home prices are dropping in some areas of the country–in particular the Northeast and West Coast. But those areas are also the least affordable right now, which is one reason their higher prices are coming down (plus a shakeup in the tech sector).
Another way to measure affordability is by comparing median household income versus qualifying income. Qualifying income means that, in the eyes of the mortgage lender, how much of a mortgage do you qualify for based on your yearly income.
As you can see, the affordability in local markets like the Midwest and the South is quite good. The West Coast remains a trouble spot for affordability.
Housing Market Trends: The Affordability Threshold
It’s easy to talk big-picture about higher interest rates and mortgage terms and high inflation and prices. But affordability for most people is about that monthly payment. Can they afford the monthly payments (PITI) for the home they want?
When you compare what people make versus what they might pay each month, there is a threshold. It’s 25%. The National Association of Realtors recommends that the ratio of mortgage payment to monthly income is not more than 25%. All the way back to the year 2000, we’ve been below that 25% threshold. Then the pandemic triggered a housing bubble where prices were driven up and bidding wars for homes were, to say the least, aggressive.
As you can see, we exceeded the threshold in the prior year. That was the first time in more than 20 years. The good news is that today, we’ve dropped back down under the affordability threshold. If you are a buyer, that’s yet another piece of positive news.
Homes for Heroes Saves Heroes Money When They Buy, Sell or Refinance
If you’re a firefighter, EMS, law enforcement, active, veteran or reserve military member, healthcare professional or teacher and you’re ready to buy and/or sell a home, we would be honored to work with you to get it done and save you money in the process. Let our real estate and mortgage specialists in your area work with you to find the home you want. If you close on a home with your local Homes for Heroes specialists you can save an average of $3,000. Simply sign up today to learn more about how our specialists can assist and save you some money.