C’mon Folks, Let’s Get Some Perspective

So…..I find myself in the position of continuously having to clarify the comments made in the media by supposed experts about the market. You see the fact is that, while the housing market is clearly slower than 2020-2021, it is frankly outpacing anything we have seen in the last decade and a half. More importantly, if you look at the MBA forecast we will have even more robust purchase years in the mortgage industry in 2024 and forward.

The Mortgage Bankers Association put out their chart of the week today on existing and new home sales over time. There are two ways of looking at this. On the one hand purchases are definitely down from 2020 and 2021. We had the most unprecedented quantitative easing deployed by the Federal Reserve due to Covid concerns which drove rates to their historic lows, bottoming out in the low 2% range. Clearly the demand resulting from this created so many unsustainable outcomes from outrageous supply shortages, approximately 34% appreciation in single family home prices over that two year period, supply shortages for new homes where random length lumber prices increased almost four fold in just a few months.

But look at the chart. Existing home sales are higher than any year going back to 2008, aside from 2020/2021. The fact is gang, this is a pretty strong year for home sales. And while the first quarter of 2023 will look a lot like this fourth quarter of 2022, meaning it will be difficult make no mistake about it; once the Fed ends this QT (quantitative tightening) sometime in the first half of the year things will begin to return to the healthy purchase market one would expect.

To the naysayers, let me say this. Maybe it’s time to take a break. But for those who can look past the emotion of the market, just remember that as quickly as rates moved in both directions over the last two years they can do so again. No, we won’t likely ever see those 2-3% interest rates again, but the MBA forecasts 30 year fixed rates to be in the mid 5% range by the end of 2023 and in the mid 4% range lookin forward from there. Why? There are all sorts of signals that foretell why rates will come down. The spread between 30 year fixed rate mortgages and the 10 year treasury is about double the normal spread. Or just look at the inverted 2/10 yield curve.

I use a series of data slides that I present to my clients and their realtor and builder partners on a regular basis that explain all of this and more. I do this because the appetite for information that is positive right now is enormous. But the bottom line is this: even though media will talk about how much the market is lower than last year or the year before, that really is not the point. 2020 and 2021 were anomalies resulting from an overheated and over stimulated economy. But if you remove that anomaly, we are in a market that is clearly better than any year over the last decade plus. For you Loan Officers, the pain is augmented by the loss of refinances, but for you Realtors the perspective is truly important.

As we think about the new year, know this - First the industry will complete it’s “right sizing” and profitability will return to the business. Many loan officers will decide that they aren’t built for this type of purchase market and will change careers leaving more market for the rest of you. Rates will come down and demographics will prove the theme that so many economists are talking about: we will have a solid demand cycle for many years to come.

So yes, gang let’s look at data with perspective. This correction is mild, but needed. And yet the purchase market for the next few years actually looks solid with ever increasing mortgage purchase business as forecasted by the MBA in 2024 and 2025. Enthusiasm and optimism comes from you and how you talk about this market, no one can replace the impact of your attitude and your voice as you talk about this housing sector. Yes, it’s a bigger challenge when things are tougher, but I assure you - This Too Shall Pass

Happy Holidays!