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Today's video is your real estate update.

We're covering the housing markets and to save you the suspense No, we did not get a housing market crash.

So I'm going to show you the data and then I'll give you my forecast So this is a three-year chart of home prices and this is coming from Redfin.

The median sale price of a home in August was $420,846.

Compared to July, home prices fell by $1,291.

Year over year, home prices are up by 3%.

So month over month, home prices are down, but year over year, they are up.

There are currently 1.51 million homes listed for sale.

This is up a little bit from 1.47 million compared to the prior month.

So it's basically unchanged as you can tell by the graph.

Year over year, the number of homes for sale is down 18.6 percent.

And that's not good if you're rooting for a housing market crash because, well, if you want to crash, you need more selling pressure than buying pressure, but there are less sellers compared to last year.

This is a five-year chart of the percentage of homes that are selling above list price.

36.2% of homes are selling above list price.

So in other words, more than 1 out of every 3 homes are selling above list.

So that number is coming down a little and it's it's far from 2021-2022 levels.

However, it's still well above pre-pandemic levels.

This is the average 30-year fixed mortgage rate.

As you can see, it was averaging in the 4% range pre-pandemic.

During the pandemic, it dipped to 3% and then even a little bit below that, but now it's clearly breached the 7% range.

It's been floating in the 7.25 to 7.5 range.

Now, I want to share with you what the experts are saying and we'll start with mortgage interest rates.

The experts expect that mortgage interest rates will end the year lower compared to today.

However, their expectation is that mortgage interest rates will fall slightly, so they don't expect rates to fall drastically.

The consensus expectation is that it's going to end the year at in the 6% range.

So that is slightly better compared to where we are today.

We're in the 7% range, so that is slight improvement.

The analysts are saying that the economy will remain resilient, the labor market will remain strong, and this is gonna prevent mortgage interest rates from falling dramatically.

So let's talk about home prices in the future.

Zillow expects that home prices will increase by 4.9% over the next 12 months.

However, Morgan Stanley predicts that home prices will fall slightly over the next 12 months.

So, let's start with mortgage interest rates.

So, 30-year fixed mortgage interest rates, that's going to be affected by what happens to the 10-year yield.

So, the 10-year yield right now, it's relatively high.

If you want to predict mortgage interest rates, then you have to use the 10-year yield as your best indicator.

So, the first thing is that the Federal Reserve is performing quantitative tightening and this promotes higher interest rates, just generally speaking.

The second thing is that I am sticking with my prediction that the Federal Reserve will not pivot in 2023.

So, there are 2 more FOMC meetings left this year.

So, I predicted at the start of the year that the Federal Reserve would not cut interest rates in 2023.

If it plays out like that, then I do not expect interest rates to change significantly by the end of the year compared to today.

It's most likely that the third year fixed, it's gonna be range bound in the 6% to 8% range.

So there is the threat of 8% because remember, the Federal Reserve is contemplating another interest rate increase in their summary of economic projections, their SEP.

So ultimately, I don't expect that we're going to see a sharp fall in the 30-year fixed.

So let's talk about when the Federal Reserve will start cutting interest rates.

So I'm basically talking about when the Fed will pivot, the Fed pivot.

So the Federal Reserve will cut interest rates next year.

They're gonna cut interest rates in 2024.

But you should not expect interest rates, I'm talking about the 30-year fixed mortgage interest rates, you should not expect those to fall to the 2 to 3 percent range.

You shouldn't expect to see it in the 2 to 3 percent range in 2024.

Those 2 to 3 percent mortgage interest rates, I believe that they're gone for the foreseeable future.

And this discussion of interest rates, it's critically important because mortgage rates will play a significant role in determining the value of homes.

So, especially because of the lock-in effect, which we previously covered very thoroughly.

Home prices right now, they're up 3% year over year.

Home prices have not crashed, they're up.

People are making all those, okay, so people are making all these predictions, they're making predictions 3 months out, 6 months out, 12 months out.

And I seriously cannot believe that people are just overlooking the obvious.

I expect home prices to start dipping slightly because of seasonality.

I don't understand why people are not accounting for this.

Now, I do want to tell you this, apart from seasonality, I do expect that the economy is going to get worse.

And if that happens, in that scenario, my expectation is that it's going to affect demand more than supply.

If the economy gets worse, then less people are going to be looking to buy a home, so there's going to be less demand, right?

But the question is, on the supply side, is the recession going to get so bad, will it get so severe that people cannot afford to make their mortgage payments?

Basically, I'm talking about a situation like 2008 to 2010 where the recession gets so bad people can't make their mortgage payments, they get foreclosed on, they have to sell their homes, and it adds to housing inventory.

It adds to the supply side of the equation.

I don't think that it's going to get that bad.

If we were on that path, let's just say that we were on that path, I believe that the Federal Reserve would rather print money and inflate out of the situation instead of reliving another 2008 to 2010.

But right now I want to tell you the reality of the situation and you probably know this and you might be on the favorable side or you may be on the unfavorable side.

Pre-existing homeowners are enjoying their low interest rates, the 2%, 3%, 4% rates, and they're locked in.

These people are locked in and they are, I mean, they really do not want to sell.

And, okay, so these people are locked into low mortgage interest rates, right?

Even if the economy gets bad, even if the recession gets more severe, it's gonna be difficult for these people to miss their payments.

That's because they have lower interest rates and because their loan balances are smaller, because they bought their homes before they ran up 30%.

And additionally, we covered this before, it's because these pre-existing homeowners have more equity in their homes.

So to me, honestly, right now, I'm more concerned about the new homebuyers because they're getting stuck with higher mortgage interest rates.

The mortgage payments are if you calculate the numbers I'm sure many of you crunched the numbers the mortgage payments are just ridiculously expensive with these interest rates.

Many new homebuyers are overextending themselves financially and this gets me worried because this group of people, the new homebuyers, are going to be more vulnerable in an economic downturn.

But Still, this group of new homebuyers represent less than 9% of mortgage holders.

It's slowly growing, but it is growing every single passing month.

But long story short, going into the end of the year, going into winter, Because of seasonality and economic degradation, I do see home prices drifting lower over the next few months.

I think that that's going to be normal and I'm expecting that.

However, ultimately, low housing inventory, it's the same thing.

This has been the theme, this has been the story for the past 2 years.

Low housing inventory is preventing a housing market crash.

And that's not going to change over the next few months because we're still in a chronic housing shortage.

The builders are not, they're not producing fast enough and this is the expectation for the next few years going ahead.

And I want to tell you this, I want to address this.

I understand that a lot of people are saying that home affordability right now is at record lows.

And people are making the argument that because it's at record lows, something has to give.

Yes, I believe that there are cycles, periods of home affordability.

When home affordability goes up and down, up and down, I believe there are cycles.

Home affordability right now might be very low.

However, it doesn't automatically mean that there's gonna be a housing market crash in the very near future.

It may be years before there's a meaningful correction.

I forecast and I've mapped out for you 2022, 2023, and I've now mapped out for you the next 5 months leading into 2024.

I'll keep you updated and I wish you a very nice day.


Speaker 0: Today's video is your real estate update. We're covering the housing markets and to save you the suspense No, we did not get a housing market crash. So I'm going to show you the data and then I'll give you my forecast So this is a three-year chart of home prices and this is coming from Redfin. The median sale price of a home in August was $420,846. Compared to July, home prices fell by $1,291.

Year over year, home prices are up by 3%. So month over month, home prices are down, but year over year, they are up. Moving on to housing inventory. There are currently 1.51 million homes listed for sale. This is up a little bit from 1.47 million compared to the prior month.

So it's basically unchanged as you can tell by the graph. Year over year, the number of homes for sale is down 18.6 percent. And that's not good if you're rooting for a housing market crash because, well, if you want to crash, you need more selling pressure than buying pressure, but there are less sellers compared to last year. Now, I want you to take a look at this. This is a five-year chart of the percentage of homes that are selling above list price.

36.2% of homes are selling above list price. So in other words, more than 1 out of every 3 homes are selling above list. So that number is coming down a little and it's it's far from 2021-2022 levels. However, it's still well above pre-pandemic levels. So take a look for yourself.

Now I want to show you this. This is the average 30-year fixed mortgage rate. So this is a 10-year chart. As you can see, it was averaging in the 4% range pre-pandemic. During the pandemic, it dipped to 3% and then even a little bit below that, but now it's clearly breached the 7% range.

It's been floating in the 7.25 to 7.5 range. Now, I want to share with you what the experts are saying and we'll start with mortgage interest rates. After that I'll give you my opinion. The experts expect that mortgage interest rates will end the year lower compared to today. However, their expectation is that mortgage interest rates will fall slightly, so they don't expect rates to fall drastically.

The consensus expectation is that it's going to end the year at in the 6% range. So that is slightly better compared to where we are today. We're in the 7% range, so that is slight improvement. The analysts are saying that the economy will remain resilient, the labor market will remain strong, and this is gonna prevent mortgage interest rates from falling dramatically. So let's talk about home prices in the future.

So there is a wide range of opinions. Zillow expects that home prices will increase by 4.9% over the next 12 months. However, Morgan Stanley predicts that home prices will fall slightly over the next 12 months. Okay, now I want to give you my opinion. So, let's start with mortgage interest rates.

So, 30-year fixed mortgage interest rates, that's going to be affected by what happens to the 10-year yield. So, the 10-year yield right now, it's relatively high. If you want to predict mortgage interest rates, then you have to use the 10-year yield as your best indicator. So, what do we know? We know 2 things.

So, the first thing is that the Federal Reserve is performing quantitative tightening and this promotes higher interest rates, just generally speaking. This is a broad statement. The second thing is that I am sticking with my prediction that the Federal Reserve will not pivot in 2023. So, there are 2 more FOMC meetings left this year. So, I predicted at the start of the year that the Federal Reserve would not cut interest rates in 2023.

So I'm still sticking to my prediction. If it plays out like that, then I do not expect interest rates to change significantly by the end of the year compared to today. It's most likely that the third year fixed, it's gonna be range bound in the 6% to 8% range. So you can use 7% as your baseline. So there is the threat of 8% because remember, the Federal Reserve is contemplating another interest rate increase in their summary of economic projections, their SEP.

So ultimately, I don't expect that we're going to see a sharp fall in the 30-year fixed. So let's talk about when the Federal Reserve will start cutting interest rates. So I'm basically talking about when the Fed will pivot, the Fed pivot. So the Federal Reserve will cut interest rates next year. They're gonna cut interest rates in 2024.

I just see that as necessary. I see it as a must. I don't see any way around that. But you should not expect interest rates, I'm talking about the 30-year fixed mortgage interest rates, you should not expect those to fall to the 2 to 3 percent range. You shouldn't expect to see it in the 2 to 3 percent range in 2024.

I'm just being realistic. So please manage your expectations. Those 2 to 3 percent mortgage interest rates, I believe that they're gone for the foreseeable future. And this discussion of interest rates, it's critically important because mortgage rates will play a significant role in determining the value of homes. So, especially because of the lock-in effect, which we previously covered very thoroughly.

So, let's talk about home prices. Home prices right now, they're up 3% year over year. Home prices have not crashed, they're up. People are making all those, okay, so people are making all these predictions, they're making predictions 3 months out, 6 months out, 12 months out. And I seriously cannot believe that people are just overlooking the obvious.

I expect home prices to start dipping slightly because of seasonality. I don't understand why people are not accounting for this. Now, I do want to tell you this, apart from seasonality, I do expect that the economy is going to get worse. And if that happens, in that scenario, my expectation is that it's going to affect demand more than supply. So I'll explain it to you like this.

If the economy gets worse, then less people are going to be looking to buy a home, so there's going to be less demand, right? But the question is, on the supply side, is the recession going to get so bad, will it get so severe that people cannot afford to make their mortgage payments? Basically, I'm talking about a situation like 2008 to 2010 where the recession gets so bad people can't make their mortgage payments, they get foreclosed on, they have to sell their homes, and it adds to housing inventory. It adds to the supply side of the equation. My expectation is no, I don't think so.

I don't think that it's going to get that bad. If we were on that path, let's just say that we were on that path, I believe that the Federal Reserve would rather print money and inflate out of the situation instead of reliving another 2008 to 2010. But right now I want to tell you the reality of the situation and you probably know this and you might be on the favorable side or you may be on the unfavorable side. Pre-existing homeowners are enjoying their low interest rates, the 2%, 3%, 4% rates, and they're locked in. These people are locked in and they are, I mean, they really do not want to sell.

It's a lock-in effect. And, okay, so these people are locked into low mortgage interest rates, right? Even if the economy gets bad, even if the recession gets more severe, it's gonna be difficult for these people to miss their payments. That's because they have lower interest rates and because their loan balances are smaller, because they bought their homes before they ran up 30%. And additionally, we covered this before, it's because these pre-existing homeowners have more equity in their homes.

So to me, honestly, right now, I'm more concerned about the new homebuyers because they're getting stuck with higher mortgage interest rates. The mortgage payments are if you calculate the numbers I'm sure many of you crunched the numbers the mortgage payments are just ridiculously expensive with these interest rates. Many new homebuyers are overextending themselves financially and this gets me worried because this group of people, the new homebuyers, are going to be more vulnerable in an economic downturn. But Still, this group of new homebuyers represent less than 9% of mortgage holders. But it's growing.

It's slowly growing, but it is growing every single passing month. But long story short, going into the end of the year, going into winter, Because of seasonality and economic degradation, I do see home prices drifting lower over the next few months. I think that that's going to be normal and I'm expecting that. However, ultimately, low housing inventory, it's the same thing. This has been the theme, this has been the story for the past 2 years.

Low housing inventory is preventing a housing market crash. And that's not going to change over the next few months because we're still in a chronic housing shortage. The builders are not, they're not producing fast enough and this is the expectation for the next few years going ahead. And I want to tell you this, I want to address this. I understand that a lot of people are saying that home affordability right now is at record lows.

I get that. And people are making the argument that because it's at record lows, something has to give. Prices have to crash. So, I'll tell you this. Yes, I believe that there are cycles, periods of home affordability.

When home affordability goes up and down, up and down, I believe there are cycles. Home affordability right now might be very low. However, it doesn't automatically mean that there's gonna be a housing market crash in the very near future. It may be years before there's a meaningful correction. Now, I'll end by saying this.

I forecast and I've mapped out for you 2022, 2023, and I've now mapped out for you the next 5 months leading into 2024. So you can take it for what it's worth. Please subscribe. I thank you for the support. I'll keep you updated and I wish you a very nice day.

See all ClearValue Tax transcripts on Youtube

Housing Market: My Updated Prediction on Home Prices & Real Estate