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2023 second-quarter housing trends: Uncertainty prevails

Written by Erik J. Martin

The first three months of 2023 are in the books, and the quarter generated concern among real estate gurus. Understandably so, given the combination of rising mortgage interest rates, declining home sales and ongoing inventory and affordability issues.

But what do April, May and June have in store for home sellers, buyers and other players in the housing market? We asked industry insiders to identify housing trends and forecasts for the second quarter of the year. Read on for their insights.

Q2 2023 will differ from typical second quarters

Traditionally, the second quarter is the most active three-month cycle of the year for listings, buyer interest and home sales, says Nadia Evangelou, senior economist and director of real estate research for the National Association of Realtors. “Two of the busiest selling months are May and June, with June typically the peak month of the year,” she says.

But this year looks different. Selma Hepp, chief economist for CoreLogic, expects an unusual spring season due to fresh concerns over bank failures, as well as the tendency for consumers to sit things out in times of ambiguity. “In general, the economic outlook is increasingly more uncertain,” she says. “Recent developments in the financial market, combined with the Federal Reserve’s persistence in slowing inflation raises, raises the probability of a recession happening sooner, which would lead to growing unemployment and slower income growth. That would weigh on consumer spending — and housing affordability — in the second quarter.”

Dennis Shirshikov, a strategist for real estate website Awning, agrees that Q2 2023’s housing climate looks cloudy. “With ongoing financial cloudiness, it’s hard to predict how the economy and housing market will perform,” he says. “If there is swift action to reduce fiscal and banking uncertainty, lenders might be more open to originating mortgage loans and there could be a good pickup in activity — especially if mortgage rates are reduced.”

The climb back to normalcy won’t happen all at once, predicts residential-banking attorney Scott Krinsky, a partner with the Romer Debbas law firm in New York City. “The most telling sign we’ve seen so far is that each time mortgage rates have dropped, we have subsequently seen an increase in activity from buyers who had been waiting patiently on the sidelines,” he says. “The hope is that we’ve already seen rock bottom in terms of overall market activity.”

Q2 mortgage rate projections

Where do the experts foresee mortgage rates across the second quarter? The consensus is that they will likely hover near current levels — unfortunate news for those hoping to see a meaningful decrease.

“I envision mortgage rates for the 30-year fixed-rate home loan to average 7.0 percent, versus 6.0 percent for the 15-year fixed-rate mortgage loan,” says Albert Lord, founder and CEO of Lexerd Capital Management in Summit, New Jersey.

Rick Sharga, founder and CEO of market-intelligence firm CJ Patrick Company, believes rates will seesaw between 6.5 and 7.0 percent for 30-year loans, compared to 5.75 to 6.25 percent for 15-year loans. “But if inflation continues to decline and the Federal Reserve stops raising rates, we could see mortgage rates begin to reverse course by the end of the quarter, settling into the 6.0 percent range,” he says.

Factors other than the Fed could influence Q2 rates as well. If rising concern in the banking sector persists, says Evangelou, “mortgage rates will likely drop faster than expected. I see the average rate on a 30-year fixed mortgage to be around 6.2 percent this quarter.”

Where home prices and inventory are heading

If rates remain high and buyer enthusiasm wanes, many anticipate home prices softening as the year progresses. Nevertheless, home affordability continues to be seriously out of reach for a large number of buyers, and that trend isn’t likely to change in the second quarter.

“While I don’t think we will see the crazy skyrocketing prices that 2021 and early 2022 brought, the shortage of homes for sale is having a huge impact, causing prices to stay high,” says Ralph DiBugnara, president of Home Qualified and SVP of Cardinal Financial. “Prices will stay that way for the remainder of 2023.”

“The combination of record high prices and higher interest rates has decimated affordability for many would-be buyers, especially first-time purchasers who don’t have equity to tap into for large down payments,” says Sharga.

Consider that the supply of homes for sale remains at about half of what would represent a balanced, “healthy” market. “Inventory numbers are higher than they were a year ago, but new listings are actually lower,” Sharga continues. “That means inventory is increasing only because it’s taking longer to sell homes once they are listed — fewer new listings are coming to market.”

Unless rates take a tumble this quarter, don’t expect resale listings to increase anytime soon, either. “Homeowners with a sub-4 percent mortgage loan, which represents over 70 percent of borrowers, aren’t in a hurry to sell their home and take on a new mortgage with a rate close to 7 percent,” Sharga says. “I believe many buyers in the second quarter will simply wait for market conditions to improve.”

Strategies for homebuyers and sellers

With the Q2 market looking uncertain, should you buy a house now or wait? Many experts suggest that buyers in a secure financial position, with job stability, should pull the trigger soon on a home purchase. That’s because the combination of rates, prices and inventory may not trend strongly in their favor in the short term.

“If you can find a home you love and can afford at today’s prices, don’t wait,” says Sharga. “Home prices in most of the country are unlikely to crash, and mortgage rates will only come down very gradually if they decline at all this year.”

Krinsky advises those looking to buy in spring or summer to “keep diligent by staying connected with your real estate broker and loan officer. By monitoring the trends, you can gain a stronger sense of comfort and confidence when you decide the time is right to purchase.”

What about those looking to sell their home in Q2? Spring is traditionally the best time to sell, after all, and while this spring may be atypical, you could still try to take advantage of increased buyer traffic. “Home sales are expected to increase by 5 percentage points in the second quarter,” says Evangelou.

“Don’t wait to list your home in the hopes of getting an extra 5 percent on your purchase price,” says Shirshikov. “You may miss the wave of spring buyers and ultimately end up with a house on the market for multiple months.”

On the other hand, if you aren’t in a rush to relocate, it could make sense to pause in the hopes that market conditions recover. “The selling climate should improve in the second half of 2023 and again in 2024, so patience is called for,” Sharga says. “If you do need to sell your home sooner, be realistic with your list price. Listing a property with an unrealistic asking price will probably result in multiple price reductions.”

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