By Cindy Royall Libonati
We have had an 11-year run-up in home prices in North America through April 2023. We are on the way back up after a brief pause. The outlook for real estate is good. There are always going to be times of correction, and opportunities come with those times.
But buyers and sellers are fearful and confused. A professional Realtor needs to bring common sense, guidance and share researched information to instill confidence back to the clients, so that they feel good about going forward with their plans to purchase or the sale of their property.
Brian Buffini, CEO of Buffini and Company, the largests business coaching program in North America, pointed out that in his 30+ years in the real estate industry, that this is the first time he has seen sellers stay put because they don’t want to part with their interest rate.
This recession and time we are coming through is not anything like the crash of 2007-2009, and Buffini had the research to show why. 39% of homes in the nation are owned free and clear and 29% have 50% or more equity. So, 68% of American households either own their homes outright or have 50% or more in equity. There’s nothing to foreclose.
Additionally, the Wall Street Journal said this: “Three million U.S. households with incomes of $150,000 are still renting.”
Dave Stevens, former President of the Mortgage Bankers Association and former Senior Vice President, Residential Loans, Freddie Mac, said that the Federal Reserve made the most dramatic interest rate increases and we may see a couple more gentle increases towards the end of the year. They will be short-lived.
He said interest rates should come back down, not to the pandemic-era low rates, but possibly mid to high 4% ranges to possibly 5%. He added that the Fed always overshoots and creates recessions…and then they drop the rates. Stevens says by the end of this year rates will begin to drop and even more over the next two years.
Michael Fratantoni, Chief Economist, SVP of Research for the Mortgage Bankers Association, says his forecast is that 30-year fixed rates will be closer to about 5.5% by the end of this year, and will drop a little lower next year. Stevens believes we will be just under 5 % in 2024.
Sam Khater, Freddie Mac Chief Economist, says with the rate of inflation decelerating, interest rates should gently decline over the course of 2023.
Lower rates will bring a new wave of home buyers. Advice to real estate agents: we have a short-term correction but since the 1960s when records have been kept, prices always go back up.
Supply and demand is still the measurement. We currently have a 2.9-month supply of homes for sale. That is very low. There is a pent-up demand with buyers. Sellers who have been holding on to their current homes because of their low interest rates, will begin to sell when we are in the 4% range. If they have a need to move, it will finally make more sense to make the move and sell.
The prime buying ages are 34-35 year-olds, and that population is who is primarily buying right now. Guess what! The 28-32 year-olds are right behind them and coming into the market place in the next two years. That wave is a population bigger than the Baby Boomer population. Let that sink in. “This nation is standing on the front doorstep of the largest wave of home-buying demand in U.S. History.”
COVID accelerated the desire to own vs rent, The demand is so strong, the Fed couldn’t even stop the real estate market.
The banks that failed had big depositors demanding higher rates. Big banks that are FDIC insured, are safe. There may be a few more smaller banks with similar depositors as those that failed, that could still fail, but the big banks are safe. Commercial real estate will have issues as much of the current work forces still work remotely. When it’s time to refinance, their cap rates and cash flow will be affected.
In closing, Stevens said he projects that 2025 will be the second or third biggest year for home sales in history due to the wave of demand coming. This will ensure steady home price increases and a couple of interest rate reductions in 2024. He is bullish on the year ahead. We have passed the bottom of the market. He is hopeful that we could see 4.2%-4.5% interest rates next year.
Buy the dream. Refinance later!
Cindy Royall Libonati is with Sotheby’s International Realty in Calabasas. DR#00582036. Call her with questions about this article or to sell or purchase your home at (818) 421-4468 or email cindyagent@aol.com.
