Appleton Realtor Breaks Down February 2023 Real Estate Market
Tuesday Feb 21st, 2023
Appleton Realtor Breaks Down February 2023 Real Estate Market
We're going to talk about three things today. Interest rates, inventory, and headlines! First, we're going to cover interest rates. Second, we then move into inventory, which is one of the most significant issues in real estate today. Third, we then talk about some of the headlines that we're seeing right now that may be factually correct, but misleads consumers in a lot of ways, so we are going to clean that up a bit. As always, I want to say thank you for tuning in…
Welcome to Real Estate with RedBeard
Hi, I am Steven “RedBeard” Vertz, The Largest Beard in Real Estate, and Owner/Operator of Wizards of Real Estate.
This the February 2023 Market Update. If you like this kind of information, be sure to like, share, and follow as I will be sharing more informative videos about the real estate market, as well as those home selling and home buying tips!
We're going to cover several things that I think are very, very important in the market right now. We're seeing a lot of movement, sometimes movement in things that in a normal market might take three to six months that are happening inside of a week, 72 hrs, 2 days, maybe even just a day…so everything is fast paced. We're going to break this movement down.
We live in a day and time where there's more information, there's more data, there's more research available to all of us than there has been ever before and yet, people are confused.
My hope over the next few minutes, is that I can present this information where it's easy to understand because no matter when you turn on the news or even in our business, so many people talking about what's happening, and yet people look at it and they go, "Okay, I'm confused, I'm not exactly sure what's happening," and I want to break that down for you, and here's where I would start.
Mortgage rates are trending downward. We can say that confidently. We’re in this downward trending environment where the average mortgage rate peaked around the first half of November. And so, for the last 90 days, we've seen almost this full percentage point drop in price.
Ali Wolf from Zonda stated, "I wonder if some consumers have worked through the five stages of grief of higher mortgage rates."
Certainly last year, we know as rates started to rise, it slammed the brakes for a lot of people, and I'm not convinced that the actual interest rate did that as it was the combination of a rapid rise in rate and the rapid rise in price together.
But now we're here, into the second month of the year and consumers are like, "Okay, we're starting to understand this. We're starting to get this."
As there comes a little bit of relief in rates, we'll see more demand. If something's priced right in this market, it's going to sell quickly, and there are even a lot of stories of multiple offers coming back now.
Now, I don't think we're heading back into the market of COVID where there was this frenzy and we were all stuck in this Twilight Zone like market. I do think consumers are adjusting to the fact that interest rates have made it more expensive to buy a home.
When we think about the 30-year fixed rate, 7-7.5% is going to bring weak buyer demand, and we certainly saw that over the summer.
6.5-7% there is a limited buyer demand. 6-6.5%, we're getting back into good buyer demand.
Once we break through the threshold to get into the high-5s, we'll see strong buyer demand come back into the market. We've seen good buyer demand start to come back in the market.
We're heading back into a time between good and strong buyer demand based on where interest rates are trending. If we go back and graph that, we see that we're already there and as we get more good information about the economy, about inflation, we should expect that trend to continue. The biggest issue though, that I believe we face going into the spring market is not this interest rate issue because that's going to quickly become a non-issue.
There real issue we face is the fact that new listings are now below previous years, and I want to break this down for just a minute and spend a moment on it because as you see this red line here, that's new listings coming to market in 2022. And so we started out the year new listings coming and starting to almost eclipse where we had been in previous years, and this created the idea in many people’s heads that a market crash was going to happen. They thought that since price is always determined by supply and demand, and that more listings would hit the market with less buyer demand due to inflation and other factors, that the market would come crashing down.
We all know they were wrong, but that was their case.
In actuality, here's what happened. New listings started to fall and we brought new listings to the market at a slower rate than 2017 - 2021, and we know that's what's kept upward pressure on prices.
There's not a market across this country where we are hearing anyone say… “we have plenty of homes for the number of people that want to buy them.” Listings will be the issue as we go into the spring market and it doesn’t help when many builders have slowed down or are not building. Many have pulled back a little bit.
We wrapped up December with 21% fewer new listings coming to market in this country than the prior year, so no doubt, we're not seeing the listings that we need. You can look at January where we finished up new listings in this country, and we're at a lower level than we saw in 2020 and 2021. We're not bringing the listings to market that we need now. Now, there are several reasons for that. Many people have an interest rate that they want to keep, and others mention that "We don't want to put on our house on the market because we're not sure where we are going to go,"… which still points to the inventory issue that we face.
Sellers need to keep in mind that there’s more equity in homes today than ever before, especially if they have owned their home for 3 or more years. So one of the questions becomes what are you going to do with your equity?
Articles come out and talk about people that maybe bought during the pandemic that have buyer's remorse. Now, I'm going to say I don't believe that that's a significant issue in the market. I think anybody that buys a home at any time may think, "We would do something different. We wish we had more space, maybe a better kitchen, layout, or whatever it may be.
If you are a homeowner, let me know in the comments on how your home is working out for you? It is always great collecting data for future articles and/or videos.
Mike Simonsen from Altos says, "I'm looking at the latest housing data and I see surprising demand indicators including home price resiliency and supply staying restricted," what we just talked about, restricted inventory. “Who would've guessed that?” Well, I think a lot of us in the business would have guessed that. We would've said, "You know what? If you look at what's happening, the dynamics in the market, we're not seeing a flood of inventory, we're not seeing a flood of foreclosures. And yes, that is keeping upward pressure on prices, home price, resiliency," he's calling it here.
And there are demand indicators as we start to move into that, if you think about that red to green image that I showed you above, we're moving back into good to strong indicators relative to the health of the market and going into the spring market. The health in the spring market will be determined by the number of homes that we have to sell. We can't sell what we don't have, but here's what becomes very, very clear, and I want to spend just a minute on this. We are no doubt in the turn of the real estate market. Most experts would say it started about the middle of last year. It'll run to the middle of this year. We are here in February, maybe right through the middle of the turn. Big banks are starting to revise their forecast.
Goldman Sachs—on January 10th, they said, "We believe real estate in this country is going to lose a little over 6% in value—6.1% in depreciation in the coming year." Well, on the 24th of January, they went back quickly and they updated that to negative 2.6%. If you have been following me, I said this year is likely flat, a little bit of depreciation, a little bit of appreciation depending on where it lands, a flat year in real estate because we don't have an enormous amount of supply that's driving price down. Price is always determined by supply and demand, and oh by the way, you're starting to see banks and forecasters start to say that, so be on the lookout for that. Many of them said last year it's going to be disastrous, and they're saying now, "Maybe it's not going to be that bad. Maybe we were wrong about our earlier forecast," be on the lookout for that because you are going to start to see it.
The question that I'd like to put on the table is, have home values hit bottom? If you look at this from every major tracker that we look at, Case Shiller, FHFA, Black Knight, CoreLogic, you see right here that the peak in depreciation happened sometime around August, sometime in the fall. Now, these numbers are cumulative, but we've seen less depreciation than we saw back in August. When we look nationally at home prices, we can confidently say that they're not in a free fall. Be aware of the news media outlets, as headlines do more to terrify than they do to clarify.
Anytime we see something in the media that could be confusing or hard to understand, we want to make sure that we're bringing you the education you need so you understand what's really happening out there because a lot of the media headlines can make people pause their plans.
So I'm going to start with this stat right here from a recent survey from NerdWallet, and it says, "67% of Americans say a housing market crash is imminent in the next three years.” This means that two out of every three people think that a housing market crash is coming. That’s not really new though, as I had to shut that thought down many times over the past 3-4 years. Now, if you follow along with us, you know that the data says differently, but why do people think that? It's because there's so much confusion out there around us, and a lot of it stems from the misleading headlines we all see every day!
So we pulled these headlines about foreclosure data recently, and it says, "US foreclosure filings surged 115% in 2022,” and “US foreclosure activity doubles annually, but still below pre- pandemic levels,” and then “Foreclosure filings rose 115% in the past year."
Now, while all these are factually true, they don't tell the whole story, but they get people to read the articles and read the information because these headlines are alarming. These headlines will make some think that the market is about to crash, so what I want to do is take the recent foreclosure data that these are pointing to and break that down to make sure we're all on the same page to understand what these headlines truly mean..
This is a quote from ATTOM, a very trusted source that we follow. It says, "ATTOM, a leading curator of real estate data nationwide for land and property data today released its year-end 2022 US foreclosure market report, which shows foreclosure filings, default notices, scheduled auctions and bank repossessions were reported on 324,237 US properties in 2022."
Now…“That's up 115% from 2021,” so that's what you saw in those headlines, “but down 34% from 2019 before the pandemic shook up the market,” and that's what you didn't see in those headlines. Are you following what I am saying?
“Foreclosure filings in 2022 were also down 89% from a peak of nearly 2.9 million in 2010.” You can see is that a lot of the media headlines will go right to the statistic that grabs the most attention, which is where they say it is up 115%. That is taken out of context out of the bigger picture.
This next graph will help to visually break this down. So here's a look at US foreclosure activity. It says it doubles annually, but still below pre-pandemic levels. This is a look at US properties with foreclosure filings, and it's going all the way back to 2005.
What you can see in those dark red bars is those were years where we had over 1 million foreclosure filings per year.
Look at the data of how much foreclosures have increased over the past year, and that's what the 115% was, but look over at the right-hand side. We went from nearly record level lows of foreclosures in 2020 and 2021 to up in 2022. That's the 115% increase. They more than doubled, no doubt. We said this was coming, but at the same time, if you look back in time as to what this means, contextually 324,000 foreclosures is nowhere near the millions and millions that were recorded when the housing market crashed in this country.
So we're in a very different period of time, a very different landscape for what's happening in the housing market. We're going to break down all of those reasons why we're in a different place today, but it's important to have the context as you look at the headlines to truly understand what they mean because in 2010, there were 2.9 million foreclosure filings.
Since then, buyers have been more qualified with better credit histories and income qualifications in order to get their loans. We were also in a strong buyer’s market back then, with a large amount of houses to choose from before and during the crash!,
People look back in time and they remember the foreclosures rising before the crash and they think, "Here we go again," but the data looks very different. And so let's zoom in a little bit more at the past few years.
So we actually had 1 million fewer foreclosures over the last three years than we did even compared to normal years,. Data from ATTOM shows that in 2017, 2018 and 2019, we average just under 600,000 foreclosure filings in this country. Now, we never want anyone to go through foreclosure by any means, but what we do know is that it happens every year in this country.
Unfortunate financial situations, family situations, things happen and people have to go through the foreclosure process. Now, if you look at the last three years, we had a very different scenario. We had the forbearance program, we had higher equity so people could sell their homes quickly and avoid foreclosure. Banks and lenders also did what they could so we were not going to end up in a foreclosure crisis again.
And so over the past three years, we had record low foreclosures, so we're not even anywhere near even a normal year when it comes to foreclosure filings. Now, our hearts go out to the 324,000 people who last year had to go through this process. But what we're not talking about here is epic proportions where we have a housing market crash. Many people think crash when they hear foreclosures rising, but what the data shows, contextually, is that we're in a very different place today, so let's talk a little bit more about why.
Here is a quote from Rick Sharga where he says, "Eighteen months after the end of the government's foreclosure moratorium, and with less than 5% of the 8.4 million borrowers who entered the CARES Act forbearance program remaining, foreclosure activity remains significantly lower than it was prior to the COVID-19 pandemic. It seems clear that government and mortgage industry efforts during the pandemic coupled with a strong economy, have helped prevent millions of unnecessary foreclosures."
And that's the bottom line right there is that we're talking about a very different experience. The forbearance program gave people time and space when they needed it to get back on their feet. The mortgage industry is doing everything they can to work with homeowners to keep them in their homes, and we've got a strong economy, so the equity that people have built up over time has given them the opportunity to sell their home versus go through the foreclosure process. So while we know that foreclosures are rising today, we're certainly not talking about crash levels because we're in a very, very different scenario.
And I think that this quote from Bill McBride says it very well. He's an expert that we follow too, and he really saw the writing on the wall when the market crashed in 2008, 2009, but here's what he's saying about today's market. Last month he said "The bottom line is there will be an increase in foreclosures over the next year from record low levels, but there will not be a huge wave of distress sales as happened following the housing bubble. The distressed sales during the housing bus led to cascading price declines, and that will not happen this time."
So it is really, really important to have this context to understand why this is different and that we're not headed for a crash. The data just doesn't support that. History does not support that. I hope these truths and clarity has brought you some insight so you don’t have to wallow in fear and uncertainty about the market, and you don’t put your plans on hold based on these things.
I bring you the facts, the data, the insights so you can truly see what is happening out there.
I hope you enjoyed our Monthly Market Report this month. I hope you found this information helpful.
Now before I let you go, I feel compelled to share a bit more.
The foreclosure process takes time. If you or someone you know may be facing foreclosure, please please talk to a Realtor. We can help you to sell your home before you lose that hard earned equity you have in your home.
Now, I get it….Some people don’t like Realtors or agents, and talk about how they don’t want to pay a commission. What they don’t realize is that our expertise not only help smooth out the home selling processes, we make you more than enough money to cover our commission. The data proves time and time again that we net more money than what home sellers do on their own, and that is even after our commsion is paid.
Some of those same people then talk to one of those cash buyer places, and think they are doing great because now they don’t have to pay a commission. However, you are giving up so much more than that.
I have taken many classes by cash buying companies, and you are giving up at least over 20% in almost every case, and often at least 25%-30% after an offer that is under market value and subtracting any needed repair costs on top of that. They can say there are no fees or commissions, needed repairs, etc., but you are sacrificing a tremendous amount of equity when you go that route. Would you rather pay a Realtor commission of say 5,6,7% or more versus giving up 20-30% or even more?? You just have to do the math my friends!
Sure you can close super fast instead of possibly waiting for a month or around 42 days to close, but you are giving up so much money. You could pay me 6,7,8, even 10% commission and I would help you get more money than any cash buying place. Don’t believe me? Talk to one of those companies today and have them give you the bottom number, and then I will give you what your bottom number will be through just about any Realtor out there. The numbers will absolutely shock you!
Is there a place for these types of companies? You bet. However, I would only use it as an option if my house had all kinds of major problems, and one that a typical loan buyer wouldn’t be able to go through with the process due to those problems. I would still talk to a local Realtor to get another opinion in any case though!
As always, we are grateful for you watching, we are grateful for you investing this time into understanding what this market shift entails. Be the informed buyer or seller in this market…and be sure to follow me on the socials…as I have plenty more videos coming your way!
Until Next time my friends, RedBeard out!
Steven "RedBeard" Vertz
The Largest Beard in Real Estate aka The Wizard of Real Estate
Owner/Operator, Managing Broker, Realtor, Real Estate Agent, Author
Wizards of Real Estate LLC