In 2022, Year-over-year CPI peaked at 9.1% in June, and monthly readings since have steadily declined. After bottoming out at 2.65% in January of 2021, mortgage rates peaked in October 2022 at just over 7% and since have also adjusted down, currently averaging in the high 5% to mid-6% range.

MIR had been historically low for nearly two decades, did anyone really expect that to last forever?

Well, no.  But the sudden, dramatic increases made by Fed Chair Powell are concerning to U.S. consumers, 41% of whom say they now fear a housing crash in the next year, per a new LendingTree survey. Unrealistic, or something we should all be concerned about?

“It’s a valid question,” Lawrence Yun, NAR (National Association of REALTORS®) chief economist acknowledged at the org’s Real Estate Forecast Summit in mid-December 2022: “People are remembering the crushing and painful foreclosure crisis. So, it has become a key question: Will home prices crash after the strong run-up in prices across the country over recent years?”

Okay, so will they?

Unlikely. Yun predicts home sales will fall by 6.8% in 2023 compared to 2022, primarily during the Q1, based on the expectation that some homeowners will be unwilling to exchange their low mortgage interest rate for a higher one. But home prices in 2023 are forecast to increase 0.3% compared to 2022.

“After a big boom over the past two years, there will essentially be no change nationally” in home prices in 2023, Yun said. “Half of the country may experience small price gains, while the other half may see slight price declines.”

Comparing 2023 and 2008 is like comparing apples and oranges:

• The current labor market is super-strong  DC unemployment has reached its lowest level in 34 years! This week’s report from the ORA (Office of Revenue Analysis) late 2022 unemployment rates at 4.6%. And national numbers are stellar. The Bureau of Labor Statistics reports today that the U.S. unemployment rate has fallen to 3.5%. Yun’s jobs update in early January 2023 emphasized the addition of 223k new jobs in the past 30 days, with 4.5M added during the past year;“There are more Americans working today than at any other time in history,” he wrote, with “11.2M employed in the past two years, and 23.2M since the low point during the economic lockdown in April 2020. The unemployment rate is at a historic low of 3.5%. Wage growth over the past 12 months was 4.6%.”  Yun says job additions are critical in generating fresh housing demand as mortgage rates show signs of stabilization:“Housing affordability remains a challenge for those renters considering buying a home. More homes, therefore, need to be built to ensure more supply and lessen the upward pressure on home prices and apartment rents. This will also help tame the overall consumer price inflation, permitting the Federal Reserve to stop raising interest rates and possibly lower its short-term fed funds rate before the year ends.”
• Inventory shortages and new housing starts  Inventory is expected to remain tight in 2023, with housing starts below historical averages. Pre-2008 annual new home construction of approx. 7.65M units compared to today’s paltry 4.6M. The 2023-24 market will be subjected to a massive housing shortage resulting from a decade of underproduction exacerbated by the Covid pandemic.
• Lower loan risk Thanks to Elizabeth Warren’s CPFB, the subprime loans wreaking havoc before and during the 2008 housing collapse are dinosaurs in today’s market.
• Delinquency rates are much lower About 10% of all mortgage borrowers were delinquent on their loans following the 2008 housing crash. The current mortgage delinquency rate is holding at all-time lows, around 3.6%, according to Yun.
• Foreclosure rates are much lower Even post-pandemic, foreclosure rates only hit 0.6% compared to the rate of 4.6% during the Great Recession. Yun predicts foreclosure rates will continue to remain at historically low levels during 2023.

Use the right data if you’re handicapping the market.

Washington DC

In the District, you can look at a lot of market metrics (like activity for all homes types and neighborhoods) that will seem to support the idea that the DC housing market is falling, but if it is cold, hard pricing facts you want, look at price per SF for solds compared to 2021:

Not a huge drop from the baseline considering that a percentage of the declines from August through December can be attributed to annual seasonal adjustments.  Remember, this data reflects all home types, throughout the District. Not the best sample if you want to pinpoint values for a particular neighborhood or housing type.

Why use PSF as a metric instead of median sold price? Because the market is segmented into home types, sizes, neighborhoods and micro-neighborhoods, and further, into homes that are renovated vs those which are not, new construction, etc. Seller pricing and buyers’ expectations should be set according to specific, hyper-local data, trends and market conditions to be as accurate as possible. Illustration: Here’s the Median Sold Price for all home types throughout DC and the same metric using PSF:

Now, small condos may not be performing as well in the current market as large detached homes, and values in some neighborhoods consistently outperform those in other neighborhoods. So to really get a sense of the market, we’d want to factor that in. So let’s add a location example by comparing Median Sold Price and PSF in Wesley Heights DC, and then for Detached Single Family Homes in Wesley Heights:

And now let’s look at the Wesley Heights Detached Homes type with the Median Sales Price metric:

What a story data tells, and what a difference filters make! Remember, closing data reflects contracts negotiated approx. 30 days prior. You can see bidding wars affecting prices in spring 2022, impact of rates exceeding the 5% mark in April and May, typical summer and holiday slowdowns, the shock of rates rising over 7% in October. The biggest declines are seasonal–and how quickly we recover!

What was the highest U.S. inflation rate?