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Economists, Area Realtors Expect Home Sales To Continue to Improve as Year Progresses
WHITE PLAINS—The COVID-19-induced home sales boom is over and sales activity in 2022 and the first few weeks of 2023 were down significantly thanks to rising inflation and higher mortgage rates.
In the first weeks of 2023, the Federal Reserve continued to hike rates to control inflation and is expected to continue to do so at least through the middle part of the year. Recently, conflicting economic data has many real estate professionals scratching their heads, wondering what lies in store for the industry that continues to struggle with affordability and low inventory that are putting many first-time homebuyers on the sidelines.
A piece of good news for Realtors and consumers is that mortgage rates have fallen from their high of nearly 7.2% in October 2022 and have at least stabilized in the low 6% range. Despite the recent improvement, consumer demand has waned as rates skyrocketed from an average rate of 3.22% in January 2022 for a conventional 30-year mortgage.
To gain some perspective on where the regional market is heading, it is important to gain insight from industry experts, specifically economists from the National Association of Realtors, National Association of Home Builders and the Mortgage Bankers Association. Finally, and perhaps most importantly since real estate is local, Real Estate In-Depth asked some veteran real estate executives from the region for their thoughts on where the market is heading in 2023. Most seem to be cautiously optimistic that the worst of the “housing recession” is in the rear-view mirror and that sales volume will generally reflect more normal markets of years past.
The National Association of Realtors predicts home sales will decline by 6.8% this year compared to 2022 (5.13 million) and the median home price will reach $385,800—an increase of just 0.3% from this year ($384,500).
At the end of January, NAR Chief Economist Lawrence Yun said after a favorable pending sales report, “This recent low point in home sales activity is likely over. Mortgage rates are the dominant factor driving home sales, and recent declines in rates are clearly helping to stabilize the market.”
Yun, even after the latest employment report from the U.S. Labor Department showed a stronger than expected jobs market, was still fairly positive. “Robust job data will raise the prospect of consumer price inflation and the need for a more aggressive monetary policy to rein in inflation. So just as mortgage rates were trending down towards 6%, there could be a temporary rise,” Yun said. “Still, rents are expected to calm down due to active apartment construction. That will help lower the broader consumer price inflation and halt Fed rate increases by summer. Mortgage rates can then go below 6%.”
He also recently noted that “The new normal for mortgage rates will likely be in the 5.5% to 6.5% range.” Yun added.
The National Association of Home Builders recently reported that 2022 was the first year that single-family starts declined in 11 years, falling an estimated 12% to 999,000 units. NAHB is projecting that single-family production will fall to 744,000 units this year before rebounding to a 925,000 annual pace in 2024.
On the multifamily front, construction boomed in 2022, up an estimated 15% from the previous year to 545,000 apartment starts. NAHB is projecting that multifamily starts will fall 28% this year to a 391,000 total and will stabilize in 2024 at about 374,000 starts. There are currently more than 940,000 apartments under construction, the highest total since 1973.
Consumer demand in the form of new mortgage applications is finally showing signs of strengthening. While refinance deals have cratered, down 75% from a year ago, the Mortgage Bankers Association reported that overall mortgage applications rose 7.4% the week ended Feb. 3, 2023 as compared to a week earlier.
The bump in activity prompted Joel Kan, MBA’s Vice President and Deputy Chief Economist to say: “Both purchase and refinance applications increased last week and have shown gains in three of the past four weeks because of lower rates. Overall applications remained 58% lower than a year ago and rates are still significantly higher, however, this week’s results are a step in the right direction. Purchase activity that was put on hold last year due to the quick runup in rates is gradually coming back as rates ease and housing demand remains strong, driven by supportive demographics and the ongoing strength in the job market.”
2023 President of the Hudson Gateway Association of Realtors Tony D’Anzica said the number of closed sales in the Hudson Valley for January 2023 were down in every county by double digits as compared to January 2022.
“This reflects low inventory and higher interest rates, which raise the cost of borrowing and owning a home. While the next six months should remain stable, the overall slowdown in the economy will impact the local real estate market,” he said.
D’Anzica, the Broker-Owner of Dynamax Realty NYC, Inc. of Manhattan, added that most recent statistics show that the GDP rose just 1%, consumer spending was at its lowest point in over one year, and average hourly earnings rose at its lowest rate over the last year.
“While unemployment edged down, the labor participation rate is at its lowest level in 20 years. This data and the Fed’s continued interest rate increases will contribute to fewer sales and a slower rate of increase (if not a decrease) in sales prices in 2023,” D’Anzica predicted,
Richard Haggerty, Chief Executive Officer of OneKey MLS, recently noted that seasonality has returned to the New York City regional market. “The market took a break in the last quarter of 2022, with buyers staying on the sidelines taking a breather from the frenzied activity of 2021 and the first half of 2022. I think with interest rates stabilizing and signs that inflationary pressures are cooling, we will have a solid spring market.”
Liz Nunan, President & CEO of brokerage firm Houlihan Lawrence, agreed that the residential market is showing signs of returning to sales activity levels posted prior to the onset of COVID-19.
“At the end of 2022, the demand for homes remained very high in relation to supply in most markets and price ranges with a few exceptions. In Northern Westchester, homes priced $4 million and up saw an increase in inventory with low demand. Putnam County homes priced over $1 million experienced the same slowdown, and parts of Dutchess County returned to a more balanced demand.”
She added, “These few market shifts may be the first indicators of a market starting to normalize. As we enter 2023, conditions remain ideal for sellers who properly price their homes, as discouraged yet price-savvy buyers continue to wait for new inventory.”
Joseph Rand, Chief Creative Officer of Howard Hana | Rand Realty, noted that while sales were down compared to the COVID-induced 2021 market, sales levels were comparable to those recorded prior to the pandemic. In fact, he said, “2022 still had more transactions than almost every year in our regional history. I think that sales will hold steady this year, and might actually go up a bit if we see the inventory increase.”
He said that home prices will hold their current levels and perhaps even increase a little if inventory levels improve from their current historic lows.
Rand said that overall buyer demand is still strong, despite the hurdles prospective buyers must overcome, such as low inventory and higher lending rates. “The economic fundamentals are still very strong—inflation is easing, interest rates are coming down, the economy is growing, and unemployment is at an all-time low,” Rand said.
When asked his thoughts on how the Hudson Valley housing market will fare in 2023, he said, “My overall prediction is simple: we’ll close about as many homes as we did in 2016, but at 2022 prices. That’s a pretty good market for everyone.”