Froth in the Market is Dead
In late 2022 and now 2023, we are now seeing a reversal of the froth infecting the market from the Fed actions of 2019, 2020, and 2021. The Fed has already announced it will reverse the actions it has taken to cause massive price increases. For 2023, froth in the market is dead. The FOMO by homebuyers has taken a path towards its end. Will the FOMO end? YES. Will it end quickly? YES-It has now ended with a dramatic STOP. Home sales have already fallen for almost every month in 2022 and 2023. Price cuts by sellers have skyrocketed. More houses are lingering on the market without offers. Inspection and appraisal waivers are dead. Buyers have more power now than in the last 3 years. Buyer power will accelerate the rest of 2022, 2023 and into 2024. Learn how Winning Mortgage, Winning Home can put you in control on your next purchase.
The froth of 2021 has abated. But, prices still remain elevated going into Q4 2022. Along with the new 7.00% mortgages, will this be the next domino in FOMO death after the price increase deceleration? Look for mortgage rates to stabilize in the 6.5% to 8.0% range unless new inflation numbers continue above 8-9%. Continued inflation above 8% may drive mortgage rates into the range of 8-9% by year end 2023.
Sales Data Foreshadows More Pain
on September 28, the National Association of Realtors released its data on new contract signings for home sales. It’s ugly. New signings are down almost 25% from a year earlier and reflect a 10% lower level than that of 2001, back 20+ years. This means closings will follow downward. Interest rates reached the highest level in 22 years. OpenDoor, one of the big cash buyers using software code to make purchase offers is now on track to lose even more money than Zillow. Zillow lost nearly $1 billion and closed its buying operation last year. OpenDoor now loses money on virtually every home it bought and still had in its inventory to sell. How much? Perhaps $50,000 to $100,000 depending on the market.
The wild card here remains the massive flood of new immigrants. If 1-2 million illegal immigrants are added in a year, how many housing units are required? How many does the government pay for after moving them around the country at tax payer expense? Is the government paying top dollar for rentals? Those claiming asylum, even if unwarranted, may qualify for a lot of government handouts. Is that boosting rents so that large cash investors find buying a larger percentage of homes profitable and normal buyers are squeezed out? How much of the price pressure overall is coming from illegal immigration pushing up demand from the bottom? They won’t be buying million dollar homes, but if rents are pushed up $500/month, how many families find buying is cheaper than renting? Remember, inflation at its core is demand exceeding supply.
August 2021 Marked the Beginning of FOMO Fatigue
As noted above, spring in 2021 elicited many bidding wars due to FOMO by buyers. However, that has now dropped dramatically as August numbers reflect the lowest level of competitive offers since 2020 on properties. Buyer selectivity has increased and buyers backed off on bidding for properties. We expect this trend to continue throughout the rest of 2021 and into 2022. Foreclosure activity jumped 27% in August and now reflects a total 60% jump in foreclosures from August of the prior year.
The Fed kept rates low through early 2022 despite all signs pointing to the Fed irrationally propping up home prices by buying mortgages at low interest rates and keeping rates artificially low. March 2022 marks the beginning of the end of Fed stupidity and the beginning of the rapid increase in mortgage rates.
Federal Reserve Remains the Wild Card
JPMorgan Chase (the largest US bank) CEO Jamie Dimon has warned investors that the Federal Reserve could still be forced into a sharp policy move in 2022. Now that 2022 has arrived, the Fed is already planning an abrupt end of its inflationary policies. It will likely raise rates at least 6 times. Inflation numbers pushed mortgage rates to 5.5%. Poor policy choices by the Fed, if they continue, may push mortgage rates to 7% or more by the end of 2022. On January 5, 2022, the minutes of the December Fed meeting were released, spooking the stock market and severely impacting interest rates. The recent rise in interest rates to begin 2022 qualified as the highest percentage jump in 20 years.
In its announcement at the end of their meeting in November 2021, the Federal Reserve started that reversal. The December meeting notes reflect an acceleration of that reversal as predicted by this site months earlier.
Jamie Dimon, head of JP Morgan, noted that if inflation remains so high that it causes the central bank to “jam on the brakes, pull out liquidity, then you’re going to see a huge reaction.” That reaction already started after inflation caught the Fed by surprise. The Fed reaction from the meetings of its December meeting reflect perhaps the start of a “huge” reaction. It remains to be seen how huge.
Reports Note Heavy Bidding Wars Have Ended
Finding a home to buy remains a challenge for some house hunters right now. Overpricing of homes represents a big problem. Until now, buyers have been willing to overpay while getting cheap mortgage rate loans. But now, froth in the market is dead. Are you ready to take advantage of that and finally win in purchasing your dream home?
Read Winning Mortgage, Winning Home to be prepared for how to buy, when to buy, how to borrow for the best rate. And get off the FOMO bandwagon. Froth in the market is dead.