Keller Williams Co-Founder on the State of the U.S. Housing Market
My team and I attended Keller Williams’ annual conference in Anaheim, California last week.
Here are some takeaways from co-founder Gary Keller’s State Of The Housing Market keynote speech:
Home Sales Volume Will Have a Great 2023, Home Prices Not So Much
After scaling record high peaks in 2021 and 2022, home sales volume (number of homes sold) in 2023 will drop a notch, but at $2.13 trillion will still be on pace for the third-highest year in recorded real estate history, Gary Keller said.
Home prices, however, are expected to slip 1.0 percent in 2023, he added.
But slowing home price growth doesn’t mean homes will become more affordable.
“We don’t believe we’re going to see negative price (appreciation of homes),” Keller said.
That’s because it will take least four years for the real estate market to reach the historic trend line of 4 percent home price growth, he explained.
“We believe that we will simply see a reduction in the rate of inflation (of home prices).”
While homebuyers are currently spending 25 percent of their income on housing costs, that’s still lower than previous decades when homeowners shelled out up to 35 percent of their monthly income on a mortgage.
Housing inventory is still tight at 3.3 months, indicating a seller’s market.
However, if the U.S. market follows the trend in Canada, a true buyers market could be on its way, he said.
Inflation’s Impact on Mortgage Rates is Not as Bad as You Might Think
Federal Reserve’s battle to curb inflation has catapulted mortgage rates higher by 400 basis points over the last 12 months.
“It’s kind of still gonna be a rocky ride in ’23 because ’23 will be a full year of the federal government trying to get control of inflation (because) they don’t want to send the economy into a full-blown recession,” Keller said.
However, relative to many sectors such as hospital services and college tuition fees, where costs have jumped 227.2 percent and 181.2 percent respectively since 2000, housing costs have increased by a more modest 87.1 percent, he said.
When adjusted for inflation, the real change in prices from 1989 to 2022 saw the monthly mortgage for a median-priced home only rise 2 percent, said Jay Papasan, KW’s VP of Strategic Content, who shared the stage with Keller.
Millennials and Gen-Zers saddled with college loans and other education costs, and Baby Boomers grappling with steep medical bills will be burdened most by higher inflation, Keller said.
“The takeaway here is that housing isn’t changed as much as people thought,” Papasan said. “Your mortgage is only 2 percent higher in real dollars than it was in 1989.
Keller Williams sees the U.S. Consumer Price Index (CPI), a key measure of inflation, falling to 2.3 percent by 2024, from 6.43 percent in 2022.
Don’t Wait to Buy - Mortgage Rates Under 4% Aren’t Coming Back in Your Lifetime
Even with inflation, most Americans would be smart to buy a home and lock in housing costs, Keller said.
“When I got in real estate in 1979, interest rates were below 10 percent and interest rates within like a year period when they actually peaked at 18 percent,” he said. “Why would you buy a house at that interest rate? Well, a lot of people did.”
“And by the way, those who bought houses at 18 percent 10 years later had the last laugh,” he added.
“Why? Two things, real estate appreciated and interest rates came down and they refinanced.”
Home homeowners who snatched up rock-bottom-low mortgage rates in 2020 and 2021 will be loathe to sell as the recent record low interest rates are not likely to return.
“You’re not gonna see three (percent mortgage rates) in your lifetime. My guess is you will never see four in your lifetime,” Keller said.
Homebuyers who secure mortgages at in the seven percent range today can likely refinance at five to six percent as the Fed brings inflation under control, he added.
“(Buying real estate) has been proven to be the best long-term plan to build wealth because the second that prices go up on the houses, people that can’t afford to buy and they go rent and every greedy landlord in the room today will raise the rent on those suckers. Yes or no? Yes, yes, you will. Of course, you will. So rent never does it.”
Over time, the value of home will appreciate faster than renting and investing in the stock market.
“Even if owning a home takes up 60 percent of your income, do it,” he added.
“Why? Because you’re trying to lock in your cost of living.”
The Biggest “Threats” Moving Forward
“What would be the things that we just need to keep an eye on?’ Number one would be any further escalation in Ukraine,” Keller said.
“That could destabilize so much from oil and gas to wheat, you name it. I mean, there there are products coming out of that region that make a difference.”
The second-biggest threat comes from the Fed as it continues its war on inflation. If the Fed loses that war, the U.S. economy could fall into a recession, he said.
“In fact, if something weird happens and instead of (the Fed) getting it under control this year, it goes up, all bets are off.”
The battle in Congress over the U.S. debt ceiling could have a major impact on the third and fourth quarters of 2023, he added.
Two other areas to watch: Rising tensions between the U.S. and China, and the impact of global climate change.
“Look, I don’t care who caused it, but there is climate change,” he said.
”Climate change is very real. By the way, it’s going to destabilize cities and it can destabilize a government overnight.”
All of this said, what’s happening in northern NJ local market out in the trenches?
Multiple bids, inspection caps and waivers and appraisal waivers seem to rule the day. Not to mention that we haven’t seen that 1 percent drop in home prices, which of course are nowhere near the median of $383,000. At least not for well priced homes in good condition and in desirable locations.
Next week, we’re attending the Jeffrey Otteau seminar, so stay tuned for our recap on our market and where it’s headed!