September 6, 2023
The housing market, the mortgage market, it’s reminding us of the lyrics from a vintage Joni Mitchell song:
“Sittin’ in a park in Paris, France.
Reading the news, and it’s all bad.
They won’t give peace a chance.
That was just a dream some of us had.”
The Canadian-born, singer-songwriter and musical icon was referencing the Vietnam War, so in perspective, limited housing inventory and mortgage rates at 2.5X higher than they were two years ago isn’t that much of a hardship – except perhaps for people in the market to buy a home.
Let’s recap some of the latest headlines:
“Bye, Living Rooms, Bathtubs: Homes Get Noticeably Smaller”
Since 2018, the average unit size for new housing starts decreased 10% nationally to 2,420 square feet (still on the big side for most Sonoma County housing stock), according to Livabl by Zonda, a listing platform for new construction. Meanwhile, a Zillow report found that 9.5% of new home construction features homes with fewer than three bedrooms, and more often than not, builders are excluding bathtubs and formal living rooms.
Regardless of new-home features, there is still a lack of supply, or inventory. The National Association of Realtors recently published that there were 1.1 million fewer new homes for sale or under contract in June, and that’s 14% below year-earlier levels.
“Mortgage Rates Hit 7.23%, Highest Since ‘01”
And just a week earlier… “Mortgage Rates Now Highest in More Than 20 Years”
After climbing consistently throughout 2022 from historic, sub-3% rates in late 2021, mortgage rates briefly dipped toward 6% in late 2022 and early 2023, then have risen steadily since. By August 24 of this year, the average 30-year fixed mortgage came with an interest of 7.23% — the highest since 2001. Applications for purchase mortgages nationwide dropped to their lowest level since 1995, according to the Mortgage Bankers Association.
Where rates go from here is anyone’s guess, and there is no shortage of guessing, or…. forecasting, speculating etc., from market pundits. Some think the Federal Open Market Committee (FOMC) that establishes lending rates for intra-bank borrowing and is currently at a range between 5.25% and 5.5%, may hold rates steady at their upcoming September meeting – yet have left the door open for the FOMC to bump rates upward later in the year – depending on inflation, jobs data and housing data. Some economists think the Fed could start lowering rates as early as the first quarter of 2024, while the most pessimistic forecast we’ve heard is that rates won’t begin to drop until 2025. In times like these, it’s worth recalling the saying about economic forecasting, paraphrased here: “Economists have accurately predicted recessions 9 out of the last 5 times the economy went into recession.”
Despite current market conditions, there are reasons to stay positive, and namely, a tsunami of next generation home buyers is just around the corner. That demographic is known as Millennials, or people between the ages of 22 and 39, when household formation is the strongest. In 2017, a little more than 11 million Millennials owned homes, per RentCafe’s analysis. But between 2017 and 2022, the number of Millennials who owned their homes increased 64%, to 18.2 million.
In addition to new household formation, the most common reasons for previously owned homes to come to market are of course, the three Ds – downsizing, divorce and death. We’ll save Sonoma County data from those categories for another post, another day, yet suffice it to say the three Ds happen weekly, monthly, in the nine cities and 28 census-designated places throughout our wonderful region. Buyers have to be patient, flexible and focused to buy homes from this limited inventory of available housing stock.
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