We’re Poised For A Great Housing Fall, Y’all: What Q4 Has In Store

The cool winds of Q4 have been nipping at our noses, and with it, the housing and lending industries appear to be going into hibernation — and I wonder what this winter will bring.

Here’s the state of housing and mortgage from my view and trend analysis on a national level. Certain regions and niche markets will not follow the national trends.

Mortgage applications and rate

Overall mortgage application activity “dropped to its slowest pace since 1997,” said Joel Kan, MBA’s (Mortgage Bankers Association) associate vice president of Economic and Industry Forecasting.

“The steep increase in rates continued to halt refinance activity and is also impacting purchase applications, which have fallen 37 percent behind last year’s pace.”

But with the Fed raising rates to reduce inflation, we can anticipate that at some point (because, you know, history), the economy will slow enough that rates will be dropped to restimulate the economy. Nothing stops people from moving. Specific causes pause people from moving until conditions (in this case, rates) improve.

Housing side data

Per NAR’s Oct. 20 release: “Existing-home sales sagged for the eighth consecutive month.” This alone is not a good sign for the industry as a whole. More transactions tend to be better for most of the industry as it runs on commissions. 

NAR reports the “seasonally adjusted annual rate of 4.71 million.” 

What really is a clear sign is comparing year-over-year numbers rather than one month over the prior month. In this case, sales slipped 23.8 percent from the previous year. That’s a huge drop — but also, 2021 was no normal year. It was the peak.

Inventory status 

Inventory is back up (compared to last year), and that’s a good thing for buyers. But typically, inventory this time of year is dropping week over week. Not so this year.

There is so little buyer activity; inventory is acting atypically and climbing due to the rate increase on Sept 1. According to Mike Simonsen, CEO of Altos Research, these are unprecedented times.

If we compare inventory to our last “normal” year (2019), we see that we are still approximately 40 percent below that year’s inventory at this time that year (425,000 active listings today versus 955,000 active listings in Oct. 2019).

After the winter slowdown, what remains to be seen is whether low inventory will stay 30 percent to 40 percent low or if inventory will continue its steady climb in 2023. The percentage of people who move each year has been dropping for decades, but this drop has been hard to notice. 

LO prediction

This is not a good time to be a loan officer who faces massive continued cuts for the time being. Looking forward, there will never again be as many loan originators as there were last year.

Automation has improved and began being adopted by some in the past two years, but with the vast number of loans being processed, there was little time to reinvent the wheel, so lenders ramped up hiring.

Now, with virtually nothing going on and a depleted staff, lenders will move technology to the front burner for the next six months, with the aim of reducing staffing needs going forward.

Why? Because technology is easily scalable in changing market conditions. Scaling people is a lot of work and very expensive.

Real estate agent prediction

When agents get the bill in the mail from their local association and NAR to pay their dues, we will see a massive decrease in the number of Realtors. Those who hung their licenses as a “nice to have” will simply jump off the slow-moving real estate train. 

The allure of selling homes quickly and easily is now gone. It’s now considerably more work to sell homes and it now takes work to get listings. And work costs money — something that the casual agent does not have. 

We will see a 30 percent decrease in Realtors year over year in membership. However, the bulk of these agents will not be large producers. Savvy brokers will find a way to keep these folks engaged as a lead source, despite their departure from the space. 

This reduction in headcount will help the future transition of the workforce from 1099 to W2, but that’s another post.

Zoomtown dropdown

According to a September report from Goldman Sachs, “Home price drops are coming to nearly 40 percent of metropolitan areas in 2023. Markets that had big price run-ups in recent years are particularly at risk.” However, the report continues to say that the majority of homes will see an increase of 0.7 percent in 2023.

The so-called “Zoomtowns,” those that received an influx of work-from-homers amid the pandemic, will be the hardest hit. Nationally, the percentage of homes on the market with price decreases has jumped. According to Altos, as of Oct. 24th, 42.5 percent of the listings on the market have taken a price cut since hitting the MLS nationally. 

Our forecast

People move because of life events. We predict that life events will continue to happen across the nation at a similar rate as in recent years. Divorces will continue to happen, babies will be born, children will leave the house or return home, and unfortunately, the only predictable thing in life is death, all of which often results in a home for sale. 

While rate conditions are currently not great, the affordability will be better year over year due to a slowdown of price appreciation from the rate we were looking at a year ago. Zoomtowns may have a double-digit negative price appreciation.

The slowdown will trickle over to the early spring of 2023, when we anticipate lower interest rates, moving the spring sales season forward. Transactions will still happen, but with this delay.

If rates do not lower 1 percent by early spring, expect six to 12 more weeks of winter transaction volumes. Then inventory will increase, dropping prices further until we find a level balance between the home price and interest rates.

Hobby agents and lenders will churn out of the industry in droves as they look for other work. This winter will be very cold for mid-tier agents who need deals to survive or who have not built robust systems and processes around changing conditions. 

High-volume teams who don’t take action will take a body blow but survive relatively unscathed. The winners, however, will be those who pivot to increase efficiency and add automation to systems for growth to add market share. They will be the people who truly understand what triggers a move and are tapped into their database to stay ahead of these movements.

This reset won’t be comfortable, but the industry as a whole, including prices, rates, supply and the number of agents and LOs, needs to return to “normal” after such an aggressive two years.

Chris Drayer is co-founder of Revaluate which segments consumers for marketers by propensity to move.