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MortgagePoint September 2023

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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 36 September 2023 S P O N S O R E D C O N T E N T NAVIGATING THE 2023 HOUSING MARKET: XOME'S INSIGHT INTO THE BUYER-SELLER STANDOFF B y XO M E A t the start of 2023, the outlook for the housing market was murky amid economic uncertainty. There was anxiety across the real estate industry with the potential for rapid changes ahead. Home price forecasts varied wildly, as no one knew precisely how the market would fare in the potentially volatile months to come. Now we're past the halfway mark of 2023 and the housing market remains in a standoff between buyers and sellers. This dynamic has resulted in relatively flat prices despite declining home sales. While buyer demand has dropped sub- stantially, ultra-low inventory levels have put a floor under further significant home price declines for the moment. But what lies in store for the remainder of 2023 and beyond? A Closer Look at the Buyer-Seller Impasse B uyer demand, as measured by purchase rate locks, has dropped by about one-third since 2019. But at the same time, active listings have plunged even further to just half of 2019 inventory levels. So even as closed sales have decreased 20% year over year, home prices have only fallen by about 3% as the tight sup- ply supports steady home values. The reason for the listing shortfall is that most sellers are staying put, unwilling to give up rock-bottom mortgage rates. Cur- rently, over 90% of mortgage holders have a rate below 6%, and 60% of them have a rate below 4%. With today's average rates hover- ing around 7%, selling and taking on a new, higher-rate home loan would cost homeown- ers thousands of dollars in interest expenses. We could see increased supply and down- ward pressure on home prices in the coming months, but only if an economic downturn forces homeowners dealing with a negative job market into a position where they need to sell. Cooling Rent Growth Widens the Gap P reviously, rising rents made buying a home more appealing by comparison, but that tide is turning as red-hot rent increases cool off, housing inventory stays low, and home prices stay high. That's giving those who once saw buying as a potential money saver over renting a much different outlook. After huge jumps of 10-20% in many mar- kets throughout 2021 and 2022, lease growth had already slowed to just 2% nationally by this past May. As a result, the gap between the home price index and the equivalent rent index has risen all the way to 48%, matching figures seen at the peak of the mid-2000s housing bubble. Rent hikes should continue decreasing thanks to massive numbers of new apartment builds across the country, expected to hit a 50-year high by the end of 2023. As the overall national rental market begins to trend down- ward, the relative benefits of buying over renting a property will continue to diminish. Affordability—Not Availability—Is the Real Challenge W e hear a lot about a housing shortage in the United States, but the true core issue plaguing the real estate market today is one of affordability. Despite narratives that tell us otherwise, the actual ratio of total households to hous- ing units in the country is nearly unchanged since 2003—there are not significantly fewer homes relative to the number of households looking for housing. But with home prices still hovering just under 2007's all-time highs, coupled with mortgage rates spiking over twofold since early 2022, typical mortgage payments now consume 50% more of household incomes compared to historical norms. To restore affordability in the housing market, there needs to be a significant uptick in income, a decrease in interest rates, a decrease in home prices, or some combina- tion of the three. While a 2008-style housing market crash and meltdown appears unlikely for now, caution is advised. Xome's Market Perspective: A Balanced Outlook S o, what lies ahead for the market? Xome's original 2023 outlook was a moderate one,

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