What should we expect in the spring of 2023 and beyond, the summer and fall of 2023, and going into 2024, is there a housing market crash? Are the prices are going to drop? Are the interest rates going to stay higher? What is going on? We have been hearing a lot of things. I have been hearing since 2021 and 2022 that there’s going to be a big housing crash. If you listen to those negative YouTube channels, they always talk about doom and gloom. They’ve been talking about that since 2019 and nothing has happened. So what has happened? I’m going to talk about five different areas of real estate that will affect the real estate market, either positively market, staying positive or staying stable, or negatively, where the market may godown drastically or just go down normal let-go. So let’s see and let’s talk about those five areas right now.

Let’s start with affordability. Yes, affordability has gone down in the last year and the year before that. In other words, less people can afford a home this year than they did two or three years ago or four or five years ago. And there are several factors for the affordability. Less people can afford homes. Here’s an example: If you are buying a house for $500,000 and you are going to put 10% down and let’s say the interest rate was 5%. Now, let’s say you could not buy a house when you were looking. And now the house is at $550,000 because of appreciation, prices have gone up 20%, 30%, and 40% in the last two or three years, and now you’re ready to buy. But that house is worth $550,000. So guess what? You cannot afford that house for $500,000. You have to buy something for a lot less because the price has gone up.

On the other hand, if the interest rate went up, let’s say you were going to buy a house at $500,000 at 4%, and all of a sudden the interest rate took a jump, which it did. Interest rates have tripled for the first time within two years in the last 40 to 50 years. So let’s say now the interest rate is 6%. So all of a sudden, because you are going to buy a house at $500,000, putting 10% down, and you are qualified to buy at 4% down, now that the rates are at 6%, guess what? You’re out of affordability. You cannot afford that home. So affordability has a big factor. So a lot of people cannot afford to buy a house even if they want to. Nationwide, last year, the affordability factor was around 64%. That means based on their income and based on the medium home price at that time, only 64% could afford to buy a house. In California, it’s a very low number. In California, the affordability factor is close to 16% to 17%, which is very, very low. In 2021, for California, quarter one in 2021, 27% were able to afford a home. In 2022, quarter four, a year later, only 17% could afford a home. So the higher house prices, the higher interest rate knocks out a lot of people that want to buy.

So that does affect the number of homes that one can afford. The second factor that affects the housing market, maybe a crash, maybe no crash- is the supply of inventory or inventory of homes for sale. As you may know, right now, there is a big shortage of homes. And the market starting February 2023, and March 2023 has taken a turn. As of the summer and fall of 2022, the market did slow down, prices did drop, and a number of homes did drop in selling. Homes were selling for less than the listing price in general, overall. Of course, in local markets, they might have been selling higher. But if you talk about the general USA market, homes were selling for less than the listing price if they were not priced right. But what has happened since February and March? And what is expected and what is happening right now, as we see it in my office of the first team and as we talk to other agents in Texas, in Georgia, New York, Massachusetts, Seattle, all over the place, because we have a network, we are seeing that there’s a shortage of homes. And because of the shortage of homes, there are multiple bids on homes. Again, yes, that is good news. Homes are selling over the list price. We’ve had a lot of open houses in our office in the last three or four or five weekends. The rains stopped as well. And we are seeing 20 to 60 groups of people coming in.

If you compare the summer of ’22 and the fall of 2022, there was a big drop in open house traffic, which has gone up. And one of the driving factors for these multiple offers and this drive in the open houses and multiple bids is because of the shortage of inventory. If we look at 2020, there were 80,000 homes for sale. Approximately 80,000 homes for sale in the CRMLS multiple listing Service, of which I’m a member. And this CRMLS includes San Diego County, Riverside County, San Bernardino County, Orange County, Los Angeles counties, and fewer other counties. In 2021, towards the end, there were 55,000 homes for sale. The number of homes dropped. In 2022, there were 45,000 homes for sale. That is, the inventory was approximately 45,000 homes. If you look at 2023, currently, there are only about 30,000 homes for sale. As you can see, there’s a big shortage of homes.

So the question is, why is there a shortage of homes for sale? Well, we’ve had a shortage since the pre-pandemics in 2019-2020, we’ve had a shortage.2 021-2022, we’ve had a big shortage. Now we have even more shortage, as I mentioned earlier, 30,000 homes are for sale in 2023 right now, compared to 80,000 in 2020. So here are some factors that are affecting the shortage of homes for sale. Why is there a low inventory of homes for sale? The number one reason are we have a lot of rate-locked sellers. What does that mean? All the sellers who bought homes, or all the buyers who bought homes in 2021-2022, paid anywhere from two and a half, three, four and a half percent interest rate, 30-year fixed rate. Now, if those guys were supposed to sell, if those homeowners were supposed to sell, why would they sell their house to move up or move down or move to a different area and get a six or 7% interest rate? It does not make sense because the payment will be the same or even double if I’m selling a $500,000 house at 4%, and if I move up to a $700,000 house at 7%, my payments most likely will be two, and a half or three times my payment. I’m not going to do that. And a lot of the sellers are not doing that. Those are what we call the rate lock buyers. They are not going to move because they are very happy with the rate lock.

I sold a house in Laguna Nigel in 2020. In December, a relative of mine, and got 2.5% fixed for 30 years on a million-dollar house. Why would they move with that kind of interest rate? So that is one reason why there’s a shortage of homes. The other reason there’s a shortage of homes is that the market showed signs of a slowdown. The Homebuilders, National Homebuilders, Dr. Horton, Toll Brothers, and all the other builders, look ahead to what’s happening on the market because, by the time they build today, they won’t sell it till next year. So they looked ahead and said, it’s going to slow down in 2021, 2022, 2023. They had that knowledge and they cut back on the building.

So that’s another shortage. On top of there was a shortage. Anyways, the builders cannot keep up with the demand for homes for sale. Right now, on average, 6 million homes sell a year. According to the National Association of Realtors 2023, they expect 4.5 million homes for sale. But the demand for homebuyers is over 10 million homes needed. And there are only four or 5 million homes selling because there are not enough homes for sale. And one reason the other reason is that the builders cannot keep up with the demand. So that’s another shortage. The other reason there is a shortage is what we call the people who three, four, or five years ago, remodeled their homes during COVID. A lot of people, instead of moving, went to Home Depot, went to Lowe’s, went to hardware stores, went to cabinet shops, and remodeled their houses. I, myself remodeled in 2018 and did a lot of remodeling in my house. Guess what? I’m not going to move anymore because I also have a good interest rate. So all the people who remodeled their homes during COVID, before COVID, and just after COVID, have decided not to move. That puts another damper on the inventory of homes for sale.

So here are a few reasons. There are other reasons for the shortage of homes, but here are the main reasons why there’s a shortage of inventory. This means if there’s a shortage of inventory, prices are not going to drop. Certainly, they’re not going to crash because it’s all about supply and demand. If there are fewer homes for sale, there going to be multiple bids on them. When there are multiple bids on a house, the price is going to sell over the list price may be 3%-7% over the list price, which is happening today as of April 2023. So shortage of housing and shortage of inventory is affecting the real estate market in a significant way. Less homes are selling. A lot of the agents are on the weekends, including me. Today, Sunday, I’m not showing any homes. Yesterday I did not show any homes. Not that I don’t want to show any homes. I do have buyers, but I have no homes to show. There’s nothing to show. So hopefully we are looking for homes. This is going to be a slower market because of a shortage of inventory. This leads to our third factor.

The third factor that affects home prices and home sales is a mortgage. But before I talk about the mortgage, two things I want to mention to you, please stick around till the end because I have a 6th point, which is a bonus point, which nobody talks about, but which is affecting the housing market in a big way. And also at the end of this video, I have a video attached also over here and at the end of this video where I talk about no more mortgage payments. So if you’re already a seller or if you’re thinking of buying a house. I show you seven to ten techniques of paying off your mortgage faster. So be sure to click on that at the end of this video or I will also have the link in the description. So the mortgage affects the number of home sales. Obviously, as I mentioned earlier, the higher the mortgage, the less homes people can afford and that slows down the market as well.

But because there’s a shortage and interest rates are higher and the home prices are higher and the inflation rate is higher, we are seeing that the mortgage has not really affected that much in general, and traditionally when the interest rate goes up, the home prices go up as well. So what we’re seeing right now is even though they are at six or 7%, which a lot of people think “Oh my God, the rates were 2.5%, now they are 7% or 6%. It is very high.” In 1980 the mortgage rate was over 15%, it was almost 18%. In the 1990s it was around 12%. This is the interest rate. In 2000 it was around 8%. In 2020 it went down under 5%. It’s back up almost six or 7% in 2023. If you look at the average since 1971, the average rate is around 7.75%. So just because the rates are 6% or 7% right now doesn’t mean it’s doom and gloom, that’s just normal. We are so used to seeing the two and three and 4% interest rates that we are panicking looking at six or 7%. And the other thing about the mortgage is a lot of the lenders are pushing variable loan variable interest rates, or what we call adjustable interest rates.

Lenders are also pushing interest-only rates where you only pay the interest just like a HELOC loan (Home EquityLine of Credit), they only charge you the interest rate but you may want to pay the principal as well. And the other kind of loan that comes out is a 40-year loan. So to compensate for the higher mortgage and the higher prices, you can drop your payments by getting variable loans which is less than the fixed loans, or you can get a four-year loan which gives you more time to pay off your loan, and your mortgage payment is less every month. Or you can just get an interest-only loan which really reduces your monthly payment. But I highly recommend you don’t take the interest-only loan unless you really want to buy a house and you have a reason to buy right now and you can refinance later on. So the mortgage rate is a big factor in the housing market the rates are six and 7% and according to statistics and according to historical rates, it’s a normal rate. So let’s see what happens.

It hasn’t really drastically affected home prices or home crash. We’re not seeing it. In fact, there are multiple bids right now. Go figure that one. Here is another charge. It says the current 30-year mortgage rates on 2022 and 2023. In 2022 January the rates were way below 4%.In July of 2022, they went around five and a half to 6%. October 2022, they went over 7%. And right now they are averaging around 5.41%, which is not a bad mortgage interest rate. And talking about the uncertainty of the housing prices and the housing market because of the mortgage rate, here’s a quote I’m going to read to you from the chief economist of CoreLogic, Selma Heap.”While 2023 kicked off on a more optimistic note for the housing market, recent mortgage rate volatility highlights how much uncertainty remains. Nevertheless, the continued shortage of for-sale homes is likely to keep price declines modest, which are projected to top out at 3% peak to the trough.”

The fourth factor I want to talk about, which just happened recently, has not really affected in the previous years. Is that what’s happening or what are the effects of banks closing? As you know, Silicon Valley Bank just closed. They are trying to revive First Republic Bank and some other banks that are in trouble. The stock market is down anywhere from 10%-30 % from a year ago. So a lot of the investors who sell their stocks and buy rental properties may not buy for a while. So is that going to slow down the housing market? How big of an impact is the closure of this bank? And I know a lot of people in the banking industry and in just general working and economic industries are just waiting to see how the bank closures, not bank foreclosures, but the bank closures going to affect the housing market. Of course, Silicon Valley Bank was an unusual case. Not all banks operated the way the Silicon Valley Bank did. And I won’t go into the details about it, but that was a big disaster which closed, it has affected other banks that may close. The federal government is pumping in money, 30 to 50 billion dollars into other banks to keep them going. So there is no adverse effect on the economy, on the recession, and of course, the housing market.

So let’s talk about stocks. As you can see from this chart, the Dow Jones industrials is going up and down. At the peak time, it was at almost 34,000 and it went down to as low as 31,000 just in the last few months. That’s a very erratic change and a lot of the investors are nervous and a lot of the people who pull money from the stocks and buy homes or rental properties or income properties or commercial properties are just waiting. Their stocks are down 20%, or 30%, so they cannot sell. By the way, I’m not sure if you’re aware, but 70% to 72% of all the rental properties, income properties, and second homes are bought by mom-and-pop. And a lot of the mom and pops, a big chunk of those sell their stocks here and there to take the down payment to buy rental properties.

I have a few friends of mine, two years agothey actually sold some stocks and bought rental properties. So the stock market does have a big effect on the rental property and the residential market. It has a direct effect. We don’t know where it’s headed, but it’sa small effect on the housing market. We haven’t seen any drastic change, but we don’t know what’s coming up in the next three, four, five months next year with the bank closures, not bank foreclosures, bank closures, and how the stock market is going to jump up if it’s going to jump up soon or not. So we’ll just have to wait and see. So now we come to the question of what is going to happen with the home prices. Are they going to crash? Are they going to go down 5%? Are they going to go down 10%? Well, what’s happening right now is we’re seeing stability in the housing prices. As I mentioned earlier, summer of 2022, and fall of 2022, there was a drop in prices.

In Austin, it’s down 15% from the peak of 2022. San Francisco is down 15%, sacramentodown 11%, los Angeles down 8%.Now remember, these are down from the peak prices. Doesn’t mean they have dropped year over year, but they are down from the peak prices. And that was in 2022 until today. But now we have bidding wars going on, a shortage of homes going on. Do that mean prices are going to come up? And also you have to make a note that these are in certain metro areas only. There are other areas, other towns, north Carolina, Texas, Arizona, Utah, Idaho, some of those cities, and of course, it’s very local, are having jumps in prices even today, as of March 2023, anywhere from 5% to 20%. So yes, we have Bay Area dropped another 1015 percent.

A lot of the metro areas have gone down, but a lot of the other areas like I mentioned have gone up 1015 20%. So we are seeing a stability overall and the local market varies. They may be down 510 percent and some other local markets are going to be up 510 15%. So it’s a very unusual market, a very volatile market, and a very local driven market. Out of the 100 people, there was a survey done. This includes real estate experts, real estate analysts, real estate companies, and CoreLogic, and there was a survey done on what’s going to happen on home prices from 2023, up to 2025. Estimated home price performance in 2023, the cumulative averageis saying that the price will drop 1.61%. Of course, this is nationwide, but local areas may go up or down. But in 2024 it’s going to go up by almost 2%.In 2025 it’s going to go up by 3.57%.2026, it’s going to go up 4.25%.2027, it’s going to go up 4.44%.

Of course, this is a forecast, this is studies done, and this is a survey done. It could be off. But the question is the prices they’re saying is going to go up. So where is the market crash? Good question. So let’s look at another scenario of what’s going to happen to the home prices. Are they supposed to drop with this high inflation, high gas prices, and high-interest rate, they’re supposed to drop? Yes, I would agree on that. Low affordability, high-interest rate, high prices. Why are the prices not dropping? Well, as I mentioned earlier, it’s about supply and demand. People want to buy houses. People are tired of paying high, high-interest rates. People are tired of paying high, high rent. And the rents keep increasing. So the people who are paying $3,000  a month can easily buy a house. There are grant programs. Right now, California is offering a 20% down payment as long as you own or occupied and you can buy a house. So the state is helping people to buy homes. There’s a shortage of homes. So there’s a demand for homes. There’s a shortage of homes.

Rents are increasing, so people still want to buy homes. Buying a home is an American dream. As long as the demand is there, as long as the inventory is low, as long as the interest rates are normal, five, six, 7% is okay. Mortgages, it’s not drastically overpriced mortgage rates. So these reasons show that the housing activity is still going to stay high. One thing I mentioned to you earlier, in2021, almost 6.3 or 6.4 million homes sold. According to the National Association of Realtors, in 2022, about 5.6 million homes sold. And the projection for 2023 is about 4.4 or 4.5 million homes sold. And of course, the reason it’s so low is of course affordability as well. But the biggest reason is shortage of homes. So personally, I don’t see a housing crash. But who knows? Let’s wait and see.

Here’s my 6th point that I promise you. The bonus point is whatkeeps this housing market active? A lot of people ask me, why are people buying? How can people afford to buy these homes? High prices, high-interest rates, high inflation, high gas prices, and high food prices. How the heck can you afford to buy a house? And one of the things that’s pumping money into the housing market that no one talks about is inheritance. A lot of the baby boomers are giving money to their sons, to their nephews, to their grandkids, to buy income, properties, to buy homes. I sold two homes in 2022 where one paid all cash, a $700,000 condo. All cash money came from parents. Some of it. I sold another house, a condo for $560,000, and the dad put $200,000 down so he could afford the loan. This was a single gentleman that bought the house. So the inheritance money, as long as it’s coming into the housing market, will slow down a housing crash if there is one. So the title of this video was “Is There a Housing Crash?” We’ll have to wait and see.