Agents are wrestling with a rough hangover after coming down from the highs of the past few years in real estate. While headlines depicting doom and gloom for the future housing market haven’t made that hangover any easier to stomach, not all forecasters are skeptics.
Brian Buffini, founder and chairman of Buffini & Company, offered some sobering yet encouraging insight during this year’s “Bold Predictions: 2023 Real Estate Market Outlook” on Dec. 12.
“Agents get freaked out when the market is raging hot because they can’t help their buyer find a home, and inventory is too quick,” Buffini said. “Then, when it stabilizes to a more solid pace, people are freaked out because it’s changed, and no one likes change.”
However, change is coming, according to Buffini, who kicked off the event by looking at the state of the market with Dr. Lawrence Yun, chief economist and senior vice president of Research at the National Association of REALTORS®.
The duo highlighted several notable market shifts impacting agent business this year, including pending home sales that sank below 2019 levels.
According to Yun, the decline is primarily connected to the cooling effect surging mortgage rates had on the market this year. In a matter of months, mortgage rates surged from 3% to surpass 7% and exceeded most, if not all, predictions.
“We have not seen such a rapid increase in such a short time,” Yun said. “The buyer’s confidence about real estate is there. It’s just that they can’t afford a much higher interest rate.”
Housing affordability continues to be a hurdle for many buyers. Surging home prices exacerbated the problem last year, but mortgage rate increases have added to the mix this year.
“For a middle-income family to buy a middle-priced home in America, it used to be that people earning $50,000 or $60,000 a year could buy a starter home, but not today,” Yun said. “Higher mortgage rates imply that one needs about $85,000 in income to buy a starter home.”
That has been one of many abnormalities, according to Yun. He highlighted the spread between the 10-year Treasury Yield and 30-year mortgage rates.
“Normally, the spread would be two percentage points,” Yun said, suggesting that the current spread is much larger than that.
“One thing to note is that this wide spread begins to diminish quickly over time—within three to five months—but right now, it is abnormally high,” Yun said, adding that once the spread returns to normal, mortgage rates could dip below 6% again.
Another silver lining, according to Yun, is that the mortgage rates aren’t likely to reach 7% again either.
“We are past the peak,” he said. “I don’t anticipate any rapid decline, but narrowing the spread will definitely help.”
The trajectory of home prices is another aspect consumers will likely be raving about in the new year. After a year and a half of strong double-digit growth, Yun indicated that we’re poised to see annual increases in median home price around 10% by the end of 2022.
At the same time, this year’s cooling housing market will likely result in a 15% decline in unit sales based on NAR data cited during the event.
Looking ahead, Yun indicated that NAR expects to see home prices flatten or increase by 1% in 2023, while home sales will likely wane to about 7%.
While that prognosis may concern some, there is a silver lining: 2024.
According to Yun and his data, projections for 2024 suggest a slight rebound in price appreciation with a 5% increase while unit sales tick up by 10%.
“By 2024, we will have lower mortgage rates,” Yun said. “With all this action by the Federal Reserve to contain inflation, even if it works halfway, it means we will have an inflation rate of 4% to 5%. That means lower mortgage rates.”
Yun closed out his forecast with a glass-half-full take on the coming year’s market conditions.
“In 2023, we will begin to see some stabilizing and possibly start to see some increase toward the third and fourth quarters,” he said. “Now, the annual total sales will still be down, but I think we will begin to turn the corner because I believe mortgage rates have already peaked and are on the way downward.”
Buffini followed Yun’s report with his predictions for the coming 12 to 24 months.
While hinting that “the worst is over” in the housing market, he indicated that there would be “a few more bumps along the way.”
That includes fewer transactions, which Buffini indicated would be “built upon the loss of transactions this year.”
However, agents may find that opportunity is around the corner, with pent-up demand mounting among pressured renters. Citing data from Bank of America, Buffini noted that two-thirds of millennials would likely buy a home in the next two to three years.
“The pressure to buy is still significant because rent is so high and rent is increasing at a higher rate than the price of a home, so it is still very much in the interest of a first-time buyer to try to get in,” he said.
Buffini also indicated that contract cancellations would continue next year. Looking at a trend that started during the summer, he pointed out that roughly 60,000 or more deals crumbled from July to November monthly.
“It’s one out of every five transactions that are blowing up,” he said. “If you really want to take a downward market and turn it into a catastrophe, have one out of every five transactions you do blow up.”
Buffini said candidly that the trend indicated “agent incompetency or inexperience.”
“Some people are completely untrained and unprepared for this market,” he said. “You have to have the skills that meet the market. You have to have those, and if you don’t, you’re just going to get blown away.”
Buffini rounded out his predictions by suggesting that the new year would likely see a significant amount of agent attrition as the market tightens up.
Indicating that there would be “a minimum of 200,000 fewer agents by the end of 2023,” he said there would be less competition for those who remain.
“The pros get to survive and thrive in the new market,” Buffini said.
Thriving in the coming market will mean capitalizing on several opportunities that will likely arise. According to Buffini, that includes leveraging changes that will impact buyer and seller trends.
For the former, he urged agents to highlight the cooling effect that the market shift has had on the competition for buyers, which will result in more choices for house hunters and fewer bidding war situations, allowing a few more days to think about a home.
On the seller side of the coin, Buffini indicated that FOMO—fear of missing out—will likely create some momentum to get their homes listed.
Looking at the monthly median sales price for homes, Buffini notes that agents must keep sellers focused on costs compared to the start of the year and at the same time a year or two ago for perspective.
“What we need to do is bring people back to a cadence,” he said.
Buffini also stressed the importance of agents building their network of agents nationwide for referrals as he predicted that the “transitory nature of the population” will increase.
“My most extensive advice for people watching this program is don’t go it alone,” he said. “When times are tough, you can’t go it alone. Get help.”
