With the arrival of the new year, a common question among potential sellers and buyers is to know how the real estate market will behave in 2023.
To provide clarity on such an important issue, Diario Las Américas spoke with two real estate experts who shared their respective perspectives.
According to Giovanni Orrego, a mortgage broker with ESSEX Loan Corp., the key thing is interest rates and why they rise.
“Two elements have an effect, first is inflation and second is mortgage-backed securities or titles, whether they are bought or sold. Inflation is under control. We reach a peak of 9.1% in mid-2022, currently at 7.1% The decline in inflation was due to two factors: The Federal Reserve (FED) raised official interest rates throughout the year, reaching 0 to 4.25% at the end of the year. The second is that the supply chain has stabilized. .. Earlier, there was nothing to buy and that too has been regulated. The new situation has helped inflation go down step by step,” he argued.
Orrego explained that mortgage interest rates move in tandem with inflation: “As inflation went up, mortgage interest went up. We peaked at 7.5%. However, today they’re around 6.75%.
This expert on mortgage loans affirms that it is necessary to ask ourselves what is going to happen with inflation from now on: “Most likely it will continue to decline. As time goes on, the measures taken by the Fed will continue to affect inflation and consequently mortgage rates.”
Orrego thought it appropriate to clarify that when the FED raises official interest rates, it does not mean mortgage interest rates will go up. “The Fed raises interest rates to combat inflation. If it’s high, mortgage rates will be high too”, he insisted.
Rates at 5%
“What is most certain is that the Fed will raise interest rates again next February, does not mean that mortgage rates will also increase. On the contrary, I think mortgage rates will go down further next month. My guess is that the first At the end of the quarter or in the second quarter of this year, mortgage interest rates will drop to 5% as a result of the decline in inflation,” Orrego predicted.
“In a healthy and stable market, mortgage interest rates of 5 or 6% are normal,” said Lourdes Seda, a real estate agent with more than 34 years of experience in her profession and owner of the Lourdes Seda School of Real Estate.
“What happens is that, over the last 20 years, the loan interest rates were between 3 and 2.75%,” he explained.
Seda believes that the real estate market is going through a transition: “When, overnight, mortgage interest rates soared to 7%, many transactions that were about to close fell through. Buyers who could borrow $500,000 at 4.5% interest was eligible to buy a house of 10,000, was suddenly disqualified as the interest reached 7%. The increase in monthly payments took it off the market. Something very strange happened, many could not put off their purchases, however, some Sellers decided to reduce prices to keep selling. That’s when the transition started.”
Seda said, “The market is undergoing a transformation that will last until the middle of the first quarter of 2023. The real estate market’s rearrangement will be in favor of buyers.”
Both experts agree that we are in a buyer’s market. “You see more help from sellers. Many assume closing costs, and give credit to buyers,” he pointed out.
However, Orrego made a very astute observation: “Something very fascinating happens and that is the entrance the millennium (millennials, born around 2000) in the real estate market”.
buyer the millennium,
According to Real Estate Agents, millennials are one of the largest adult groups in the US, with approximately 66 million people: “They have two characteristics that make them very attractive to the market. The first is that they are the best prepared group of adults in history, they have been studying for a long time. What allowed them to stay in their parents’ house longer and start building their own house 10 years later than previous generations. On an average, they start building their own home at the age of 30. but a thousand years old Makes $100,000 to $120,000 per year. The interesting thing is that since last year these youths are crossing the age of thirty and have started leaving their homes to make their own homes.
“Some of them enter with over $200,000. They are creditworthy, can qualify to buy, do most of their savings while living with parents. They can make good entries. If mortgage rates go down As expected, they will not be able to resist the temptation to take a buying decision. This will be their time,” he said.
i think generation thousand years old It’s not as big as it was in its day baby boomers [en los años 1960], This is a very well groomed generation, what happens is they have a slightly different mindset from all the previous generations. They focus more on condos, not houses. This is not a generation that likes to be tied down in one place, they want to move and live freely. I don’t think they will affect the real estate market significantly,” Seda said.
Market trends are marked by supply and demand. The scarcity of a commodity affects its price. Orrego said active home inventories have not reached pre-pandemic levels, when the average number of active homes was 1.3 million. “Today, we are at 750,000 active assets. Although we have made improvements, we are still far behind what a healthy market inventory should be,” he stressed.
This expert concedes that the fact that the low inventory is also a positive reading prevents a 2008-like collapse: “Builders have learned the lessons of the past and don’t want to keep so many units on the market. At that point, the inventory stood at three million properties and we all know how it ended. Another difference is that in 2008, not so many people were building houses as they are now.”
“It is hard not to notice that properties for sale take several months to market. In late 2021 and early 2022, properties quickly found a buyer. There are now homes that have been put on sale for 120 or even 180 days. listed for. When a real estate agent logs into the MLS-for-sales system, he or she sees more and more properties marked with red arrows pointing down. This indicates that their sales The prices were slashed to facilitate the buyers. As more buyers start negotiating the prices, they will go down,” Seda said.
“During the Pandemic [de coronavirus], there were owners who were having difficulty paying their mortgages, who asked banks to defer mortgage payments for six or ten months. This grace period has ended and many of these homeowners no longer have a job, have spent their money or, although they are working, cannot make their mortgage payments, as well as arrears. Huh. The result is that a lot of people are reaching an agreement with their bank to do a short sale — short sale — and give up on their mortgage,” Seda recalled.
However, the veteran real estate agent believes that foreclosures with 100% financing will not be like the 11 million registered in the 2008 crisis, “when there were many inflated mortgages”. “Over the past six years, the financing was done correctly, with well-qualified buyers, with the ability to pay, for which they were committed, unless the person experienced a major deterioration in their circumstances, Seda saw.
hostile to low income
One consequence of rising mortgage interest rates is that fewer people qualify. Beyond that, prices aren’t going to drop, Orrego said. “Low-income people, couples making between $60,000 and $70,000 a year will not qualify for the loan. They will have to wait until they have better purchasing power to be able to make the purchase.”
The expert believes that people with low incomes will have to continue betting on the rental market: “They have to pay the rent. The point isn’t whether someone qualifies for the mortgage, but that they can find the money for the down payment and closing costs. It will not be easy for that sector. Clients come to me who make $80,000 between the two of us and that’s not enough, with interest and current prices.
Seda, however, acknowledged that the market is going through a period of readjustment. A property that can now be bought for $500,000 with a 7% mortgage rate sold for $580,000 a year ago with 3 or 4% mortgage interest. When an account is taken out, for every thousand dollars financed at 3%, the monthly payment, including interest, principal, taxes and insurance, is $6 for every dollar financed. Instead, at 7%, the payment is reflected in $9 for every dollar financed. If someone buys the same house for $80,000 less, they stay in the same house. Under the current circumstances, buyers have equal opportunities to buy, even if the interest is higher, as properties are cheaper”, indicated the expert.
Seda agreed, pointing out that newcomers to the US need to be hired. “Given the rental prices, many immigrants will have to rent and even share with other families. But people who have been in the country for five or six years and earn $30,000 or $40,000, if they If they buy as a family, they can qualify. I have seen cases of married couples who club their income with their children’s income to qualify. If the family comes together, they can get real money. Estates will not go off the market.”
According to Realtor.com forecasts, during the year 2023, property prices in South Florida will increase by 3.4%, driven by high demand and development in the state. However, the number of sales will decrease by 2%.