Posted by Matt Curtis on Friday, January 20th, 2023 10:47am.
Homebuyer sentiment is up slightly for the second month in a row, according to a recent Fannie Mae national housing survey. Home buyer sentiment is up from an 11-year low, increasing 3.7 points to 61 points. If you're looking to buy a home in Huntsville, AL using this index and other info to time the market can give you the advantage in finding your perfect home.
I would expect these numbers to stay low and to rise slightly this year, but I don't know that that's absolutely a bad thing. The reason for that is you typically want to do the opposite of what everybody else is doing. Smart money is buying when other people are selling, smart money is selling what other people are buying. I think home buyer sentiment is actually a good thing for buyers in this market, not a good thing for sellers, but it is a good thing for buyers.
I think these numbers will stay low because for the home buyer sentiment to get higher, one of the things that have to happen is housing affordability has to become more affordable. How does it become more affordable? One of two things has to happen, either interest rates have to go down or prices have to go down.
The good news is interest rates do appear to have hit their peak and they are coming back down. The challenge is that they're twice as high as they were a year ago. We are in a more average interest rate environment, but it is higher than it was in the past few years. As interest rates start to come down, homebuyer sentiment is going to come up slightly. We're not likely to see that 3% interest rate again, at least not anytime soon.
Another thing that would have to happen for homebuyer sentiment to go up and housing affordability to become more affordable is for prices to come down. Though the challenge is it's unlikely that prices are going to come down in this environment that we have right now. We have a low-supply environment. We have lower demand, but we still have a lower supply. Until supply outreaches demand, we're not likely to see prices drop significantly in this market.
There are also a couple other things that are in play that are kind of behind the scenes that are affecting homebuyer sentiment.
First is dollar devaluation. About 40% of all U.S. dollars have been printed in the last couple of years. Now it costs more for everything from eggs to houses and unfortunately, wages have not been able to increase at the pace at which the Fed is printing money. We just cannot keep pace with the Fed. Unfortunately, the Fed is making us poorer as a country right now.
Secondly is this mortgage rate lockdown effect. During COVID, the Fed lowered interest rates to rates that were starting in the 2’s or 3’s. As a result, a lot of sellers and buyers at that time were able to get interest rates at historically low numbers. There's simply not enough motivation for a lot of would-be sellers to put their houses on the market.
So that's decreasing the overall supply in the marketplace right now, which is keeping that demand and supply balanced and keeping prices high in 2023.
One thing to watch for is when interest rates hit 5.5%. As rates were increasing in 2022 from 3% to 4% up to 5.5% we still had very strong demand. We didn't have nearly as many offers as we had at 3%, but homes were selling very quickly at 5.5%. That'll be a key interest rate metric to look at to increase homebuyer sentiment and also increase the demand for housing.
I'll say, as we hit 5.5%, it might be a little bit too late for a lot of buyers because there's going to be increased competition in the marketplace at 5.5%.
Remember, the smart money wants to go against the crowd. If you're looking to buy a home before interest rates hit 5.5% and you lose some of your competitive advantage in this marketplace. Shoot us an email today at moving@mattcurtisrealestate.com or contact us here.