Midyear Recap – 2023 Housing Market & Economy
Authored by NPLA Member, GoDocs
In the latest National Private Lenders Association meeting, members gained access to market insights and expert analysis during a guest presentation by Rick Sharga, Founder & CEO of the market intelligence and business advisory firm, CJ Patrick Company.
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The 2023 Housing Market & US Economy Overview
During the meeting, Rick offered a comprehensive midyear update on the state of the housing market and the US economy. Despite the Federal Reserve’s attempts to slow down the economy, the 2nd quarter of 2023 came in higher than the 1st quarter with a growth rate of 2.4%. Overall, the economy demonstrated resilience, supported by consumer spending (accounting for 65-70%), government and business spending, and the housing market.
When the COVID-19 pandemic struck, it dealt a severe blow, causing significant job losses, particularly in the service sector, disproportionately affecting renters more than homeowners. An interesting observation was that the housing market managed to escape the anticipated downturn, mainly because most of those impacted by job losses were not homeowners or actively in the market to buy a home.
Consumer Confidence and Inflation Concerns
Despite signs of recovery, consumer confidence has yet to return fully, influenced by ongoing concerns such as COVID-19 waves, inflation, geopolitical tensions (e.g., Ukraine), and global warming. Credit card usage reached record highs, as some individuals relied on credit cards to meet basic needs. Savings rates historically decreased, leading to a situation where many people resorted to dipping into their savings to make ends meet, resulting in higher credit card debt compared to savings. Although inflation remained above the desired rate of 2-2.5%, there was optimism that it would gradually decrease, possibly reaching 2% by next year.
Federal Reserve Actions and Predictions of Recession
During the presentation, members were given perspectives on the Federal Reserve’s actions and their potential economic impact. The rapid increase in fed funds rates, outpacing historical norms, has historically resulted in recessions. This led some experts to predict a mild recession in the near future. Typically, long-term bonds should have higher interest rates than short-term bonds, as investors demand higher returns for locking their money away for more extended periods.
The Mortgage Market
The mortgage market underwent substantial transformations, witnessing a rapid doubling of rates in just a few months. Despite this, there is a positive outlook that rates will slowly decrease and fall below 6% by the end of the year or early next year. Rick pointed out that the pivotal moment for the market, where more buyers and sellers are expected to participate, will probably occur around or just below 5.5% mortgage rates.
Trends in Existing and New Home Sales
The existing home sales sector encountered difficulties, experiencing a decline for 22 consecutive months due to limited inventory and rapid price appreciation. Nevertheless, several regions are still showing positive year-over-year growth amidst these challenges. Rick advised lenders and investors to carefully monitor their local markets since the behavior of the real estate market varies significantly across the country. In contrast, the new homes market performed better than existing homes, benefiting from greater availability and appealing pricing provided by builders trying to get properties off the books.
Investor Activity and Strategies
Valuable observations were offered regarding the current trends in investor activity and strategies within the market. During Q2, investors and cash buyers were responsible for 42% of home purchases, with a significant inclination towards adopting a buy-and-hold approach. According to a recent survey completed for RCN Capital, the majority of investors surveyed (53%) preferred buying and holding rental properties as their primary investment approach, followed by fix-and-flip (30%) and wholesaling (18%). Interestingly, this ratio represented a noteworthy reversal compared to a survey conducted by CJ Patrick Company approximately a year ago.
Closing Thoughts
The economic forecast suggested a possible recession on the horizon. Although, it is expected to be relatively short-lived and mild, with unemployment rates peaking at around 5 to 5 1/2 percent. However, there is some positive news in the housing market as mortgage rates are anticipated to gradually decline below 6% by the end of the year. Despite this, existing home sales are projected to decrease from the figures seen in 2022, with an estimated range of 4.3 to 4.4 million sales. On the other hand, new home sales might fare better than initially anticipated, with expectations of approximately 600,000-650,000 sales in 2023. Although the new home market saw price declines, the existing home market may have bottomed out. Interestingly, investors continue to play a significant role in residential purchases, accounting for a large percentage of transactions and showing a shift toward buy-and-hold strategies. As the year unfolds, these trends are critical to monitor for a better understanding of the overall economic and housing market landscape.
Author Bio:
GoDocs is an innovative leader in automated loan document generation, transforming the commercial lending process. With a fully cloud-based platform, GoDocs provides a flexible digital solution that makes commercial loans more cost-effective to document and faster to close, all while maintaining compliance in all 50 states. GoDocs is a Corporate Member of the NPLA.