CHM Blog

Stuck in the summer of ‘23

Lack of inventory. Unfriendly interest rates. It’s as if the summer of ’23 is already a study in moving through molasses where the housing market is concerned. Realtor.com’s Clare Trapasso asks the question: “As the mercury rises, will the housing market heat up—or continue to slump?”

This vicious cycle of interest rates/affordability/pricing/shortage of available homes isn’t changing any time soon as far as many forecasters can see. When homeowners feel stuck — reluctant to relocate and trade up or down, buyers have very little to do. As Moody Analytic’s Mark Zane says, “The housing market’s going nowhere fast. From a buyer’s perspective, it couldn’t be worse. Mortgage rates are high, home prices are high, there’s no inventory,” he says.

Sellers aren’t on any joyride either. Being in the driver’s seat means only that they are sitting behind the wheel but not touching the accelerator — nor are they lowering their prices to a point where buyers can commit. “In other words, buyers are struggling to afford to purchase a home, if they can even find one that meets their needs,” says Trapasso. “Homeowners who would like to trade up or down or relocate are stuck. And sellers can no longer name their price. So the housing market has stalled.”

While homebuilders are doing great offering mortgage buy down incentives, resale sellers are staying put. The number of new listings is down 25.7% from June 2022 and down 28.8% from June 2019, according to Realtor.com® data. And while there are technically more homes for sale than there were a year ago, this is because some properties just aren’t selling, according to Trapasso.

Even fixer-uppers, unfortunately-located, oddly configured, and bad curb appeal homes still have unrealistically high price tags attached. “These homes were selling during the COVID-19 pandemic when folks were desperate. But now that housing costs so much, buyers are less willing to compromise on a home that may or may not have potential,” says Trapasso. “Anything appealing and move-in ready in a desirable area that’s priced to move is still selling quickly, however.

“Homes are sitting for longer. We’re just not seeing as many homes cycle through the market this year,” says Realtor's Danielle Hale. “As we move into late summer and early fall, we might see even fewer homes on the market.”

In April, roughly 29% of the homes for sale were new construction, according to Freddie Mac tabulations of Census Bureau and National Association of Realtors® data. That was the highest share of new construction since the data collection began in 1999.

In a typical year, there would be about 5.5 million existing-home sales (which don’t include new construction), and a really good year could be north of 6 million sales. But there are expected to be only about 4.2 million home sales this year, according to the Realtor.com midyear housing forecast.

A bit of recent history: The U.S. Federal Reserve wasn’t a fan of the big run-up in home prices during the pandemic and began raising its own interest rates in an effort to tame inflation and cool the housing market. Mortgage rates followed a similar upward trajectory, supersizing monthly payments. The result? The typical mortgage payment was 91% larger* in June than it was in June 2019 and 9% more than in June 2022, according to a Realtor.com analysis. At this point, the end of this tunnel is not yet visible.

Falling home prices are the only ticket of hope this summer. In June, list prices fell nationally for the first time in years, but not enough to give most homebuyers any meaningful relief as mortgage rates remain high.

Realtor/ TBWS

How Rates Move:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I'm among few mortgage professionals who have access to live trading screens during market hours.

Rates Currently Trending: Lower

Mortgage rates are edging lower today. The MBS market worsened by -81 bps last week. This was enough to increase mortgage rates or fees. The market experienced high volatility last week.

This Week's Rate Forecast: Neutral

Three Things: These are the three areas that have the greatest ability to impact rates this week. 1) Inflation, 2) The Fed and 3) Central Banks

1) Inflation: We get several measures of inflation this week including CPI, PPI, Import Prices and Consumer Sentiment. CPI is expected to show continued upward pressure. PPI is expected to reverse the prior reading of -0.3 and move back into growth territory on a MOM basis but on a YOY basis it is expected to tumble.

2) The Fed: The July FOMC meeting is fast approaching and this week we get their Beige Book and one last barrage of Fed speakers before the media blackout period next week.

3) Central Banks: After Canada's policy mistake of pausing, they are expected to increase their interest rate for the second straight meeting. We will also get a rate decision out of New Zealand.

Treasury Dump:

07/11 3 year note

07/12 10 year note

07/13 30 year bond

This Week's Potential Volatility: High

This morning markets are getting a small boost after last weeks beating. Volatility has started moderate but will likely spike on inflation data this week.

Bottom Line:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.

Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

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