In this video today, we’re going to talk about the housing market prediction for 2023. Is it going to get real ugly or is it going to get stabilized? Hope it’s not like the crash of 2008. So let’s get started.

Let’s talk about the housing supply. One of the biggest factors that affects the prices of homes, or if a foreclosure is imminent , is the supply of housing. So let’s compare the 2023 housing compared to 2008 housing. If you look at it right now, nationwide there is a housing supply of anywhere from three to four months. In 2008, that housing supply or the inventory of supply is 13 months with lots of homes on the market. Now, in case you’re wondering what housing supply is or the inventory of housing is, a three month supply of housing means that if no new homes come on the market for sale, then the current inventory that’s on the market, it will take three months to sell that off. So three months compared to 13 months, that’s a big difference.

So we don’t see any drastic crash because of the supply, because supply is a big factor in home prices and home demand and the activity on home sales, if there’s too much home supplies or over inventory, like in 2008, the prices come down. But the supply is low right now, despite the fact that nationwide in January, inventory has gone up anywhere from 10% to 20% nationwide, different spots, different areas, it is still short of the 2019 and 2020 level. So we are still short on housing supply and that will prevent on a big foreclosure. That’s one of the factors that will not create a big home closure. So the low supply of housing inventory is not going to create a big housing crisis as far as the price goes.

The other factor is we have to consider what are currently and in this market for first time after a long time we have a lot of rate locked sellers. What does that mean? I’ll give an example.

Anywhere between three to five years from today, anybody who bought homes, the interest rates were anywhere from 3% to 4% or definitely less than 5%. So as an example, if I bought a home, let’s say last year at 3%, or even four years ago at four to four and a half percent. And now if I’m considering moving up or moving down, the first thing I’m going to consider is what is my current interest rate. And right now it’s anywhere from 6% to 7%. So if I was even thinking about moving to a bigger house or a different location to my mom’s or to my families, or to near a hospital, I may reconsider selling because I don’t want to pay the six or 7% when I already have a three or 4% interest rate locked. So I may not consider moving.

And that adds the shortage of homes for sale. That adds to the supply of homes for sale. Let me give you some example of how much the interest rates has a factor in people buying a home or not. And I’ll read you these stats so you can look at it. If you have a $500,000 loan amount when you buy a home, let’s say your home loan amount is $500,000 at 3% interest rate, 30 year mortgage rate of 3%, 30 year fixed, your principal and interest payment would be $2,108. Take the same home today, $500,000 loan amount, and you make that at 6%. Or you get that house at 6% interest at 30 year fixed for the same house price that was at 3% of principle and interest of $2108. That same house now has a principal and interest rate of a monthly payment of $3728. That’s a difference of $1,600 for the same house. In other words, if I bought the house four years ago at 3%, my payment would be $2108. And if I sell and another buyer buys it at a $500,000 loan amount, his payment is $3723. So what’s happening is it’s slowing down the home sales and inventory because not many homes are coming on the market.

At the same time it’s holding off the buyer from buying because he is out marketed or his affordability has gone down. In other words, he cannot afford that home because he may end up buying something for $350 to have a payment of $2100. So the rates make a big difference. And because the rates are high right now and the home prices are high right now, less homes are coming on the market. The other factor that determines the homes on the market or the inventory of supply is how fast are the home builders building their homes. Now, we know that in a normal market, in a hot market, in the last three or four or five years, builders could not keep up with the homes in demand. In fact, all the homes that came on the market was selling as the market slowed down, or as there were indication a year, year and a half ago. And of course, builders look ahead at the market two years, three years up the market, so they know when to construct more homes or how many homes to construct. 

So last year, in fact, there is a prediction right now, or these stats right now on home builders, they’ve already cut back building five to 10% less homes in 2023 compared to they’re going to be building in 2022. So by builders cutting back on home building, it’s creating another shortage. So the homes inventory keeps staying low. So the home prices are not going to crash because there’s a demand created, so there’s less inventory. So there’s more demand created. So homes are selling despite the high interest rate and high prices because there’s not as many homes to choose from, even though there’s more to choose from. This year than last year. So the one good thing about inventory being low is it is advantageous for the sellers. Because there is shortage of inventory, buyers are buying homes despite high interest rate and higher prices. What that means is the sellers don’t have to give away their home prices at a lower price because homes are selling so they can profit a little bit more and if they decide to move up or move down, they have a lot of equity protected. So they can take that equity and buy another home and that will give more activity in the home sales.

So if the seller gets a higher price, they can sell the home and either move up or move down, depending on their affordability and what they want to do. And that keeps the home sales activity going up and that keeps the inventory low and that prevents it from home prices crashing. So here’s the chart I’m going to share with you. This chart is derived from the Pacific West Association of Realtors, of which I’m a member. And this is for all the homes that sold. In that PWR listings which includes LA, Orange County, Riverside County, San Bernard County, and some other counties. So if you look at the stats, if you look at the chart right now, the median home sales price has dropped 3.4%. And this is in January 2023 compared to January of 2022. So the medium home price has dropped 3.4%, not 20%. Like a crash that people are talking about, the housing affordability index has dropped by 20%. Obviously, because the rates have gone up, the income have stayed the same. But because the rates have gone up so high and other factors, the affordability has dropped by almost 20%.

Comparing January 2023 to January 2022, if you look at the inventory of homes for sale in January 2023, the inventory was up by 12.5% compared to January in 2022, and the month supply was up by 60%. In fact, talking about a low home inventory in the PWR, all the listings, there was only one month supply in January 2022. And right now there’s 1.6 months of supply, which is an increase of 60%. But it’s still a very low number. So because homes available for sale is low, it’s keeping the activity going and holding the prices in most of the areas. Of course, there have been some areas where the prices have dropped anywhere from five to 10%.

And there’s some areas even today where prices have gone up five to 20%. So it’s a wash. Now, it’s obvious, and we know that as the interest rate went up, the home affordability index went down, which means that as the rates go up and the home prices go up, less and less buyers can afford that home. So let’s look at this chart and analyze what’s happening in some of the states. If we look at this chart, it says home affordability in U.S. Median new home prices and percentage of households who can afford it. Let’s take example for California. In California, the median home price of a new home is $527,000 and only 33% can afford to buy that.

If you look at Georgia, the median home price of new homes is $311,000 and 42% is the affordability index for new homes. If you look at Virginia, which is one of the highest states where the affordability is 54% and the new home median home price there is $317,000. So as you can see, the affordability is low right now and interest rate has a big factor along with the prices that have gone up and up and up in the last seven years. But the good news is, if you’re a seller, the prices are not dropping. And for overall economy, the home prices are holding and they’re not crashing. Because last couple of years, one of the most common questions we get as real estate agents is how much other home prices crash? 

Is there a big foreclosure coming like the one in 2008? So the good thing is home prices are not crashing, they’re gradually coming down. And as the interest rates and as the inflation drops, we might actually see a price increase starting 2024. So let’s see what happens first in 2023 for the rest of the month and then go from there. I also wanted to briefly touch on what’s happening on the housing activity as far as actual homes sold in the USA. So I’m going to give you some numbers, I’m going to read them out. 

In 2021, there were 6.1 million homes sold, according to NAR, which is the National Association of Realtors. In 2022, 5.7 million homes actually sold and closed escrow. In 2023, they are predicting only 4.4 million homes that will sell, which is quite a low number. But they expect the interest rate and the inflation to go down in 2023, which means as far as the prediction goes, NAR and other institutions are predicting an increase in sales from 4.4 in 2023 to approximately 4.6 to 4.8 in 2024, which is good news, which means that the prices may come down, but they’re going to go up in 2024 again, which is a great news if you’re a home buyer or a home seller. And the good news is we don’t expect a housing crash. Housing is not going to get ugly. It’s going to stabilize.