Have Home Prices Bottomed? What the 2023 Forecasts Actually Say

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Welcome — and it’s snowing in Southern California

Welcome to Mortgage Mom Radio. I’m Debbie Marcoux, the Mortgage Mom, and every week right here on YouTube, Facebook and Twitch I bring you my show live, where you can join me, ask me your questions, and get the information you need. This is an interactive show, so put your questions in the comments and I’ll read them out loud and answer them for everybody listening.

Today we’re covering a few things. Number one: have prices bottomed out — have they already taken their spill, and what do we see coming forward? I’m going to read you some information from the National Association of Realtors. It’s their opinion, from their financial analysts, but I found it really interesting. Then we’ll talk about changes the VA has made — they seem to be falling in line with FHA, trying to make their lending more affordable, so kudos to the VA. And we’ll talk about getting you prepared to purchase a home and the Home Buyer Workshop I have coming up on March the 11th.

I’m here in California, just outside Los Angeles in Valencia, and it is freezing today. We actually had a little snow blow through right before I started the show. If you’re hearing this later on the radio you’re probably a week off and thinking it can’t be that cold — remember I do this on a Wednesday, and today is Wednesday, March 1st. Stay warm and stay safe on those wet roads, which is not something we usually have to say here. San Bernardino County has been absolutely annihilated; Big Bear you can’t even get up to, and I think yesterday they finally started escorting people up and down the mountain fifteen cars at a time. We’re not the East Coast, we’re not the Midwest — we don’t have the equipment, the salt, the plows. Love and prayers to everyone dealing with it.

Who’s on my team

I got a phone call this week from someone who said, “I really want to talk to the Mortgage Mom, I don’t want to talk to anybody else.” First, that is 100% okay. I will take any phone call, you can schedule an appointment with me, and I will personally do the consultation and answer your questions. That’s what I’m here for.

But I want you to understand who my team is. There is not one person on my team who has been in this business less than twenty years. Carrie started around 2000. Heidi started around 2001. Heather Kilpatrick started in 1992. I started assisting my parents in 1993, got my real estate license in 1995, and started in mortgage in 2001. Nobody here is new, nobody here is training on your file. So if you call and can’t reach me and they offer to transfer you, say yes — they’re very good. And if you still want a second conversation with me afterward, that’s fine too.

VA loans and the funding fee

Veterans, perk up your ears. The VA loan is for our active duty and our veterans who have served, and if they qualify there is no mortgage insurance whatsoever, zero money down, and they can get the seller to credit them their closing costs. In reality they can get into a home with literally zero out of pocket — and they can even negotiate a large enough seller credit to help pay off debt through closing costs. It’s a great program.

What the VA does have is a funding fee. It’s financed into the mortgage balance, so it doesn’t come out of pocket, but it is charged up front and added to what you owe. You’re paying a funding fee instead of the monthly mortgage insurance you’d have on a conventional loan. That fee had gotten expensive — it was raised several years back — and on a $200,000 purchase a couple of percent is around $4,000, but as loan sizes climbed to $400,000, $500,000, $600,000, $700,000, you’re financing tens of thousands of dollars on top of what you bought the house for.

So the VA came out and reduced it. The first-use funding fee drops from 2.3% to 2.15%. Subsequent use — the second or third time you use your VA eligibility — drops from 3.6% to 3.3%. If you are rated at least 10% disabled with the VA, your funding fee is waived entirely, and that is not changing. The changes take effect April the 7th. They also reduced the funding fees on VA refinances, including streamlines and cash-outs.

I know it doesn’t sound huge, but every penny counts, and it helps you qualify for a little more because you’re financing less. I want to tip my hat to the VA for jumping in the way FHA did, trying to make things more affordable while rates are up. If you’re a vet wondering how this changes your numbers, give us a call.

Have home prices bottomed?

For the last year or so on this show I’ve been saying interest rates are going up and home prices would come down about 10% — that was my expectation for 2022, and I expected another 10% dip in 2023, with things turning around in 2024. I don’t really think that’s the case anymore. I have to retract it. I don’t think we’re going to see home prices drop as much as I anticipated for 2023.

I don’t have a crystal ball. This is my personal Mortgage Mom opinion — my best guess — from having been in this industry a very long time. A lot of what I said was true: prices did come down a bit, though not quite 10%, and rates did go up as I’d been warning for years. But on the size of the drop, I’m being put in my place.

What NAR is actually forecasting

Here’s the piece I pulled from the National Association of Realtors. The headline is essentially: buy now, before housing prices start to increase in 2024.

NAR anticipates the economy will continue to add jobs through 2023 and 2024, with 30-year fixed mortgage rates steadily dropping to an average of 6.1% in 2023 and 5.4% in 2024. That contradicts other articles I’ve read, where the expectation was seven and a half to eight and a half percent by year end. We’re only two months into the year — today is March 1st — but rates did come down from their highs back in September and October of 2022. I thought we’d get a quick dip and then a rapid climb back. Instead we came up only slightly from the bottom about three weeks ago and we’re holding fairly steady. When we move, we move slow. So I’m starting to lean toward what this article says.

Understand what that 6.1% refers to: a conventional 30-year fixed, no points paid to buy the rate down, on average. Every single person gets a different rate — your credit, the property type, your down payment and your loan program all move it. What I’m seeing today at zero points averages about six and a half percent. So a steady decline to 6.1% is fabulous news, and 5.4% in 2024 lines up with what I’ve believed: things loosen up next year, affordability improves, and far more people come out to buy.

Next paragraph: with an improving interest rate environment and job gains, NAR’s economist Yun still expects annual existing-home sales to drop 11.1% in 2023 to a total of 4.47 million units, before jumping 17.7% in 2024 to 5.26 million units. I want to make sure nobody misreads that. That is the number of units sold across the United States — not a drop in home prices. NAR also projects new-home sales will fall 3.7% year over year in 2023 before growing 19.4% in 2024.

Why I keep telling you to get off the fence

I’ve said week after week that right now is a good time to get off the fence, get pre-approved, look at homes and pull the trigger. Here’s the reasoning. Sellers have been sitting on the market longer than they were used to. The days of announcing a home on Facebook as “coming soon” and having nineteen offers before it ever hits the MLS are gone. There are fewer buyers out there, because they’re on the fence hoping rates come down and prices come down so they can buy next year.

Meanwhile, the sellers who are listed need to sell. Nobody with a really low rate lists their home when it’s cheaper to stay than to move. So the homes on the market belong to people who have a reason to move, they’ve been sitting a while, and they’re negotiating — on price, or with a credit big enough to buy your interest rate down so you don’t have to wait for 2024.

Compare that to 2020 and 2021, when buyers were waiving appraisal contingencies, waiving inspections and buying as-is. It was chaos. When things turn back, sellers get multiple offers again and they pick the strongest buyer — biggest down payment, best credit score, lowest debt ratios. They ask for your pre-approval letter, and sometimes they ask to see the automated underwriting findings showing your ratios and scores. Right now, if you’re the only one negotiating on their house, they don’t care that you’re FHA with three and a half percent down, or VA with zero down, or conventional with five percent. What they care about is getting into escrow. And if unit sales really do jump 17.7% in 2024, that’s almost 20% more people you’re bidding against.

Q&A: shopping lenders and hard credit inquiries

Fritzy asks: “It’s a hard inquiry when we start working with a lender. If I decide to switch to a different lender, is that an additional hard inquiry?”

Great question — I answered this for someone on the phone yesterday. When your credit is pulled, the bureaus know what it was pulled for: a mortgage, a car, a credit card, a personal loan. They want to give you time to shop. The first pull is a hard inquiry, and every lender after that is also a hard inquiry — each lender’s name appears on your report and stays for two years. But it’s the very first pull that nicks the score, and it should only cost you two or three points, maybe five at most.

During the shopping window, the bureaus tell you that you have 30 days to run your credit with lender A, lender B, lender C, as many times as you want, without it hitting you again. In my experience over all these years I’ve seen it start to affect scores a little sooner than that, so I tell my clients to stay within two weeks. And practically speaking: applying isn’t simple. Every new lender means telling the same story, uploading the same W-2s and pay stubs, answering the same questions. So shop one, two, maybe three companies — not a million.

Sales bottoming out, prices holding

Continuing the article: home sales activity looks to be bottoming out in the first quarter of this year before incremental improvements occur, Yun said, but an annual gain in home sales will not occur until 2024. Meanwhile home prices will be steady in most parts of the country, with a minor change in the national median home price.

Think about the seasonality there. January and February are slow anyway, and probably March too — we just got through the holidays and everyone has kids in school. Spring is when people start looking, making offers and trying to close as school ends so they can move over the summer. So what they’re saying is that we’ve hit the bottom on units sold this first quarter, and now we see incremental growth — not crazy growth, pretty normalized — and then 2024 is the big hike.

NAR also predicts median existing-home prices will be stable versus the previous year in most markets, with the national median decreasing by 1.6% in 2023. I told everybody I expected about a 10% loss, and they’re saying 1.6%. That’s a significantly different number. They then have prices regaining positive traction of 3.1% in 2024. And they estimate median new-home prices will actually increase 1.3% in 2023 and 2.8% in 2024, because of higher land and construction costs — so if you buy from a builder you’re looking at the possibility of appreciation where everyone expected depreciation.

That’s fantastic for people who own homes right now and were afraid of losing the equity they’ve gained. It’s less exciting for buyers who were hoping values would bottom out so they could snatch something cheap like 2008 and 2009. That is just not happening this time — we talked about that six months ago, that we didn’t foresee the crazy foreclosures or the crazy dip.

Southern California, January 2022 vs January 2023

Heather Kilpatrick on my team put together a comparison of median sales prices for the main Southern California counties, January 2022 against January 2023, to put that article in perspective. Her summary: the numbers are not bad at all. Orange County had no meaningful change. The biggest declines were Ventura at about $35,000 and San Diego at about $51,000.

County by county, January 2022 to January 2023: Los Angeles County, roughly $800,000 down to $778,540. Orange County, $1,195,000 to $1,194,500 — a change of about $500. Riverside, $590,000 to $585,000. San Bernardino, $450,000 to $446,900. San Diego, $875,000 to $824,950. Ventura, $850,000 to $815,000. That is nothing. That is not 10%.

The California Association of Realtors is saying this is the bottom. The National Association of Realtors is saying the bottom comes this year. Either way we’re about there. If you sit on hold until everybody else jumps, you’re back in the crowd, negotiating against multiple offers from people who may be stronger than you, and losing homes you really want.

Heather’s own comment, and I agree with her completely: you are so much better off to buy now at the lower prices this year and then just refinance in 2024. She also points out you get lower property taxes with the lower purchase price.

Workshops — and how to reach us

Last week I said if you’d be interested in a refinance workshop, text me the word REFINANCE and I’d see whether it was worth putting together. I got two text messages. Two. For those two people, please reach out directly — I’m more than happy to take you through a one-on-one consultation on refinance options, streamline versus cash-out versus rate-and-term, and what you need to qualify. And if you were listening and meant to text but didn’t, do it now: text REFINANCE to 844-935-3634 (844-WE-LEND-4). I promise it doesn’t opt you into anything — it just tells me there’s an audience for it.

The Home Buyer Workshop is Saturday, March 11th, at 12 p.m. Pacific, streaming on YouTube, Facebook and Twitch. I’ll take you from A to Z: getting prepared, fixing your credit, how much you need for a down payment, the different loan types, what closing costs are, what the terms mean, how to select a real estate agent, and what happens once you’re in escrow. You can be at the grocery store or cleaning the house and still follow along. Text WORKSHOP to the same number and you’ll get the link when it starts.

To catch the show live each week, text MOM to 844-935-3634 — that’s also the office number, and we answer seven days a week; if we’re on the other line, leave a message in the general box and we’ll call you back, even Saturday and Sunday. At mortgagemomradio.com you’ll find the tools and calculators, and you can book a phone consultation on my calendar directly. If none of the times work because of your schedule, use the contact form — it comes straight to me and we’ll find an early morning or late evening that works.

Quick peek at next week: I’m having a guest on, and we’re going to talk about what’s really important to know and to ask when you’re interviewing real estate agents to list your property. I hope you all enjoyed this one. See you next Wednesday.