Volatility in mortgage rates will lead to further deterioration of the U.S. real estate sector in 2023

Submitted by exemplaryprophecy1 t3_120w4rs in wallstreetbets

After slowing in 2022, the U.S. housing market is expected to deteriorate further in 2023, as greater volatility in mortgage rates is expected to erode homebuyer demand and builder confidence.

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Fitch has lowered its expectations for several key aspects of the real estate sector. The agency expects new housing starts to fall 20 percent in 2023, compared with an 11.9 percent decline in 2023 and a 2.9 percent decline in 2022. Although new housing starts jumped 9.8% in February from a year ago, Fitch believes rising and volatile mortgage rate levels could be a drag on "new housing starts for the remainder of the year" given the continued high interest rate outlook.

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Fitch forecasts that median sales for homebuilders will decline by 16%-18% in 2023 "due to lower home deliveries and slightly lower home prices. In addition, Fitch expects most homebuilders' EBITDA rates to decline by as much as 800 basis points, "as lower operating leverage and higher incentives only partially offset declines in building materials such as lumber. The agency believes homebuilder M.D.C Holdings (MDC.US) will be of concern to the market as weak new order activity in the second half of 2022 is expected to translate into lower sales and a worse margin squeeze than peers.

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Among other key real estate industry metrics, Fitch expects single-family housing starts to decline 20% in 2023, compared to a previously expected 11.9% decline and a 10.9% decline in 2022; new home sales are expected to decline 7.1% in 2023, compared to a previously expected 7.0% decline and a 16.8% decline last year; and existing home sales are expected to decline 15%, compared to a previously expected 9.0% decline and last year's The figure is a 17.9% decline.

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chefandy t1_jdjqc6m wrote

I bought my current house in June of 2020, which admittedly was a pretty risky time to buy (covid lockdowns, economic uncertainty, etc). Since then, my home has appreciated over 100k, while interest rates went from 3.25% to over 7%. I just used a mortgage calculator, If I bought my current home today, my principal payments would be more than double what I'm currently paying....

It's not hard to see this bubble is unsustainable...

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PM_Georgia_Okeefe t1_jdmoepd wrote

I YOLOed in April 2020 and bought a vacation home. Locked in 2.74%. Spent 2020 renovating it and now rent it out half the peak season and it covers 3/4 of my mortgage. Plus, now I don’t need to pay for annual beach vacation.

I get cold called from investors where their starting offers are 2X what I paid. The house next door that hasn’t been updated since the 80s just sold for 1.5X what I paid. This market is insane.

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exemplaryprophecy1 OP t1_jdk0ihl wrote

You have an uncanny grit. Buying a property at a particular time. It was indeed risky at the time. But with the current situation. The property you purchased was the best value

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PRNbourbon t1_jdjp0d8 wrote

New housing starts to decline 20%. Yup, thats gonna lead to a further shortage in the years to come.

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exemplaryprophecy1 OP t1_jdk19pm wrote

New home prices down 20%, but high low-pressure mortgage rates and a possible recession continue to hurt affordability

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Brotherio t1_jdmotjl wrote

Existing homes unchanged.

Current mortgage rates for existing homeowners: 65% have 4% or lower. 25% have 3% or lower!

These people aren’t selling any time soon.

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Responsible-Rip4366 t1_jdl27z8 wrote

Bro, 10 year has taken a nose dive. Mortgage rates are moving down into peak Spring selling season. Also, the vast majority of current homeowners have a 30 year mortgage (with tax deductible interest) that is below 4%. You can buy a T Bill today that pays more than that! Inventory of homes for sale will be paltry, as years and years of Gen Z and Millenials emerge from their parents basements looking to buy their first house.

Conclusion, home prices are at no risk of significant downside.

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w3bCraw1er t1_jdjpn9m wrote

People are buying in cash where I am from. 7+ offers above asking and many in Cash.

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forgetful_storytellr t1_jdjy9a1 wrote

Everything is better than cash right now

Anything real is preferred

Real estate is the realest

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VisualMod t1_jdj81oi wrote

>It is clear that the US housing market is expected to deteriorate further in 2023, as greater volatility in mortgage rates is expected to erode homebuyer demand and builder confidence. This will likely lead to a decline in new housing starts, as well as lower sales and margins for homebuilders.

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VisualMod t1_jdj80zw wrote

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>TL;DR: Fitch has lowered its expectations for the U.S. housing market, expecting new housing starts to fall 20 percent in 2023 and median sales for homebuilders to decline by 16%-18%. The agency believes rising and volatile mortgage rate levels could be a drag on new housing starts for the remainder of the year.
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URDREAMN2 t1_jdk3fjr wrote

Lol. You don't say?

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rainniier2 t1_jdndxg0 wrote

Contrarian view in more urban locations. This analysis totally ignores higher interest rates driving rents higher as rental units are more likely to have variable rate loans and people still need a roof over their heads. The equalization of the rent versus buy decision that used to favor renting in more expensive markets will continue to prop up the housing market. In other words, rental inflation will keep driving housing inflation, especially in markets where with limited room for new housing and also lower sales volume.

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