It seems as if prices keep going up. Gas is once again above $5 per gallon. Date night at a favorite restaurant is now north of $100. A quick grocery stop for a few items totals more than $50. Wallets have been stretched. As a result, many are changing their spending habits and cutting back on extra errands or nights out. Similarly, home affordability has been squeezed since the 30-year fixed rate climbed from 3.25% in January 2022 to over 7% in October and November 2022. This year started with mortgage rates easing to 5.99% in February. Yet, after reaching 6.39% in mid-April, they have been on the rise, climbing to 7.49% on August 21st, the highest mortgage rate according to Mortgage News Daily since December 2000, nearly 23 years ago. Buyers' wallets are stretched, and fewer and fewer can afford homes with these sky-high rates. The Expected Market Time (the number of days to sell all Los Angeles County listings at the current buying pace) reached its hottest reading of 2023 in April, just 51 days when rates had dropped to 6.16%. Slowly but surely, mortgage rates inched higher, eclipsing 7% in May. Demand remained flat while the inventory increased little by little. The Expected Market Time rose a touch to 52 days, which is still remarkably hot. In June, rates hovered just below 7%. Demand slowly dropped, and the inventory continued its methodical, slow rise. The Expected Market Time climbed to 59 days. It was more of the same in July; with cooling demand and an expanding inventory, the market time climbed to 62 days. Last month, in August, as rates continued to spike, nearly reaching 7.5%, demand cooled further, and even though the inventory reached a peak mid-month and then started to fall, the market time reached 68 days.
The market had gone from 51 days in April to 68 days in August, adding over two weeks to
the market time. A market time of 68 days is still decent and indicative of a market that
favors sellers in the lower ranges, yet, it also highlights the importance of careful pricing
and having an approach to the market that is sympathetic to buyers pulling the trigger
despite the high mortgage rate environment where affordability has been severely
impacted. Price a home too high, and a seller will sit with no offers or low-ball offers to
purchase. Homes that need a lot of work, deferred maintenance, lack upgrades, or have an
unfavorable location will ultimately obtain less activity. They must adjust their price and
expectations accordingly to secure a successful outcome.
According to economic experts in January, mortgage rates were anticipated to drop below
6% by the end of 2023. Instead, they have been on the rise. These experts have been forced
to modify their outlook and now anticipate that they will remain higher for longer. The U.S.
economy has been robust, with no recession in sight. Consumer spending has remained
strong, and the job market has been exceptionally resilient with low unemployment, plenty
of job openings, and increasing wages. Along with economists, the financial markets now
believe that the Federal Reserve will keep rates higher until the second half of 2024 at the
earliest. Consequently, mortgage rates have been rising.
Mortgage rates will eventually reverse course and start to decline as soon as there is
evidence that the U.S. economy is weakening or inflation drops considerably.
Unfortunately, many have learned that economics is slow and boring. It takes time for the
economy to decelerate and for the job market to cool. Until then, expect mortgage rates to
bounce around 7%, demand to remain muted, and market times to slowly decelerate. This
will require sellers to be much more calculated in their approach to the housing market.
