Mortgage rates this past month have been all over the map. Mid-month they jumped on the Federal Reserve’s decision to keep raising rates and commitment to tame inflation. We saw the conventional 30-year rates jump up into the low 7% range. Now at the end of the month with the latest tempered inflation data we are back under 6%. We expect in the near term to see continued volatility in rates as they react to each new release of economic data, especially unemployment and inflation.

Supply of housing continues to be an issue for most California markets. At the end of October, the Golden State still only had a three-month supply on the market, up from two-months last year. There are two strong reasons for this. First, new housing starts are down huge thanks to a lack of construction workers and the skyrocketing cost of materials. Many builders have chosen to pull back given the uncertainty in cost of both labor and materials (and we can’t blame them!) Second, 90% of existing homeowners took advantage of locking in long-term, low rates earlier this year at 3% or less. Upgrading to a larger mortgage at a much higher rate or just giving up their low monthly payment is now extremely costly in comparison to their existing payment. Many or foregoing moving and are happy to wait a while or just make some upgrades.

Reading the latest financial headlines, you would think that housing prices are going to fall off a cliff. In frothy markets such as Phoenix and Las Vegas values have come down 10%-20% since earlier in the year. These markets saw large swaths of speculator purchases in the last few years. Companies such Zillow, RedFin and iBuyers were purchasing millions of dollars of SFRs sight unseen. These corporate investors are now dumping inventory. Redfin alone expects to reduce its portfolio to just $85 million by the end of January 2023 and should have all its inventory sold by the end of second quarter.

Here in California, we had minor speculator activity coupled with an incredibly robust economy that will keep demand high, especially for the lower range of the market at less than $1,000,000. For the near term we are expecting housing prices to remain relatively flat to a small decline. 2023 will be nothing like the last housing bubble!

Home prices declined by 30% during the Great Recession of 2008-2009. Now, the housing market is solid foundation this time around. Given all the recent doom-and-gloom news coverage about a potential housing pullback, it is worth reviewing the fundamentals of this current cycle versus the last.

1. 20M+ more jobs today with zero net job losses in recent quarters.
2. Absence of high-risk subprime mortgages with current borrowers needed standard underwriting & affordability metrics
3. Fewer new single-family home construction suppressing housing supply.
4. Currently experiencing historically low mortgage delinquencies and foreclosures

Last cycle jobs were scare with much higher unemployment. Today we have a robust labor market currently with nearly twice as many job openings as there are people searching for jobs! We’re definitely not in 2008 anymore!