Generally speaking, Northern Arizona will end 2023 in low, single-digit appreciation.
The two major things this does for the mortgage rate market is (1) signals the end of high inflation – high inflation deters mortgage-backed security investing so this is extremely significant in helping rates get back to “normal levels,” and (2) shows predictability and transparency for the Fed, for really the first time since this inflation crisis hit, which also helps exhibit that they actually may be aware and have a level of control.
The lack of predictability of inflation and Fed actions have been major reasons for market volatility, so this was a welcome change of pace. These factors alone have helped rates dip even further from their October peak with rates at the end of 2023 for a primary, 30-year fixed purchase based on optimal parameters, sitting around the low 6% range for government-backed loans (FHA/VA) and mid to high 6% range for conforming and Jumbo loans. Many predicted we would be at those levels until the third or fourth quarters of 2024.
Mortgage Rates to Decline to 5%
The path to lower rates will not be linear and the Fed’s goal is a slow return to normal, but with an election cycle and the risks of recession, we’ll simply have to see how things play out. My personal predictions would be that we will see fairly steady rates similar to the current rates through the first quarter and a steady lowering from the second quarter through the fourth quarter, ending the year about 1% lower than where we sit currently.
No Bubble, Northern Arizona Home Prices to Remain at Low, Single-Digit Appreciation
Market activity and pricing have been very dynamic in 2023, with some homes sitting on market for twice the average time and some homes still having multiple offers and bidding wars. This can create confusion for the general consumer as to what is actually happening with pricing. Generally speaking, Northern Arizona will end 2023 in low, single-digit appreciation.
Yes, there are outliers where some 2020-2021 buyers, caught up in the heat of the market and bidding wars, paid aggressively over appraised value and have had a reality check that their over payment outpaced home appreciation levels in this short term. However, average market data reflects a fair amount of stability with just over three months of inventory on our market, leading to still a slight tip to a seller’s market.
With a lowering rate environment in 2024, I believe we’ll see strong demand and, as long as the Fed can keep rate lowering paced, that will lead to a healthy paced market with single digit appreciation. Too much, too soon on the rate lowering end could lead to a rapid demand increase and throw us right back into the bidding wars of the recent past, albeit not at 2-3% rates, but rather 4-5% rates if we see that the Fed has really mismanaged and overtightened. In the hopes that the Fed knows what they’re doing and can help market pace to normal, my predictions are a steady appreciation and certainly no housing “bubble” in sight.
More Inventory, More Activity
The lock-in effect has been real. Homeowners with sub-4% interest rates have had significant financial deterrence when considering a move. Through the end of November in the Flagstaff market, 224 fewer homes were sold than last year at that time, which was a decline from the year before as well. In December, however, we appeared to already be breaking this trend, with 70 more active listings than December 2022. Hand in hand with the lowering rate predictions, the lock-in effect will loosen and I predict we’ll see more inventory available in 2024 and will see an uptick in sales activity from previous years. FBN
By Chris Hallows
For additional information or to schedule an appointment, visit ChrisHallows.Benchmark.us or call 928-707-8572. The Flagstaff location is 824 W Rte. 66 Suite A-3.
Chris Hallows is the branch manager and senior mortgage advisor of Benchmark Mortgage Flagstaff.
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