The continuing rise of homes in the countryâ€s top metropolitan areas are forcing homebuyers to look at cheaper options. Midsize cities in the South and Midwest offer the biggest bang for your buck. 

Cities like Chattanooga, Tennessee; Columbia, South Carolina; El Paso, Texas and Louisville, Kentucky could soon be some of the hottest housing markets as home prices there are expected to climb. This according to Realtor.comâ€s 2023 housing forecast and economic overview. 

The real estate listing firm also expects to see prices rise in places like Toledo, Ohio and Buffalo, New York, as buyers continue to be priced out of the larger cities. Those who can work remotely are looking to leave those larger cities for more affordable places to live. 

In an interview with CBS†Money Watch, Realtor.com Chief Economist Danielle Hale said, “If you have a remote work job that you can take with you, then it can make sense to move there because you’re going to see your real estate dollar stretch a lot further.” 

According to Realtor.com, Augusta, Georgia is expected to be the hottest housing market in the country. The median home price as of November 2022 is $319,000 and is expected to grow by 5.7% in 2023. Rounding out the top 10 are Buffalo, New York ($240,000, 6%); Chattanooga, Tennessee ($397,000, 8.2%); Columbia, South Carolina ($300,000, 3.6%); El Paso, Texas ($291,000, 5.4%); Grand Rapids, Michigan ($358,000, 10%); Hartford, Connecticut ($372,000, 8.5%); Louisville, Kentucky ($290,000, 8.4%); Toledo, Ohio ($161,000, 6.7%) and Worcester, Massachusetts ($447,000, 10.6%).

According to Zillow, the Midwest in particular is expected to attract more first-time home buyers.

“Having available houses to choose from is another key component of a healthy market, and the Midwest stands out,” Zillow noted in their 2023 predictions released last month. “Inventory isn’t in a massive hole compared to pre-pandemic times and declines in new listings are smaller than the national average– encouraged by the more consistent demand from buyers.”

2022, a year that saw increasing prices in homes and skyrocketing mortgage rates, is over. Cities that were the hottest like Austin, Texas; Boise, Idaho and Phoenix, Arizona have started to cool. 

Itâ€s not unusual for home prices to fall near the end of the year, but prices in the top 100 markets will climb again in 2023, according to Hale.

Charlotte metro area ranked 50th in Realtor.comâ€s 2023 Housing Forecast with a 5.5% year-over-year price change. Homes in the Queen City have a median listing price of $403,852 and spend an average of 55 days on the market, according to Realtor.com.

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4.78 million existing homes will be sold, prices will remain stable and Atlanta will be the top market to watch in 2023 and beyond. All this according to forecasts by the National Association of Realtors. NARâ€s Lawrence Yun, the National Association of Realtors chief economist and senior vice president of research, unveiled the predictions at NARâ€s annual year-end Real Estate Forecast Summit last month.

Among the predictions were that home sales will decline by 6.8% compared to last year (5.13 million) and the median home price will reach $385,800 compared to 2022â€s $384,500. That is just an increase of 0.3%. 

“Half of the country may experience small price gains, while the other half may see slight price declines,” Yun said. “However, markets in California may be the exception, with San Francisco, for example, likely to register price drops of 10–15%.

After rising to 7% late last year, Yun expects the 30-year fixed mortgage rate to come down a bit to 5.7% as the Federal Reserve tries to get a control on inflation. Foreclosure rates will remain historically low in 2023, according to Yun. Yun predicts less than 1% of mortgages will default. 

Along with pricing predictions, NAR also identified the 10 markets to expect to outperform in 2023. Topping the list is the Atlanta, Georgia metro area. While Charlotte didnâ€t make the top 10, Raleigh, North Carolina comes in at number two. Rounding out the list is Dallas-Fort Worth-Arlington, Texas; Fayetteville-Springdale-Rogers, Arkansas-Missouri; Greenville-Anderson-Mauldin, South Carolina; Charleston-North Charleston, South Carolina; Huntsville, Alabama; Jacksonville, Florida; San Antonio-New Braunfels, Texas and Knoxville, Tennessee

“The demand for housing continues to outpace supply,” Yun said. “The economic conditions in place in the top 10 U.S. markets, all of which are located in the South, provide the support for home prices to climb by at least 5% in 2023.”

The Top 10 real estate markets to watch in 2023 was selected by NAR based on how they compared to the national average by using some of these economic indicators: housing affordability, number of renters who can afford to buy homes at the median price, job growth, population growth, active housing inventory and housing shortages.

How does Charlotteâ€s numbers compare?

Comparing the Charlotte-Concord-Gastonia region to number one Atlanta and number 10 Knoxville, based on the Housing Affordability Index, Charlotte received 89.6 points compared to 100.7 and 97.2 for Atlanta and Knoxville, respectively. 

23.3% of renters in the Charlotte region can afford to buy a median-priced home (at 7% mortgage rates), while 21.3% renters can afford to buy in Atlanta and 24.1% in Knoxville. And when taking a look at the numbers from NARâ€s Housing Shortage Tracker (Oct. 2022) meaning areas where the housing supply meets better housing demand for buyers to have more options,

 Atlanta ranks at 5.6; Knoxville at 4.3 and Charlotte 3.7. This measure computes how many new permits are issued for every new job.

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The U.S. is seeing itâ€s second biggest home price correction of the post-WWII era with 55% of Americans saying they cannot afford to buy their home in todayâ€s market, according to the CATO Institute 2022 Housing Affordability National Survey.

Mitch Roschelle, Macro Trends Advisors founding partner, told Fox News he attributes the huge correction to Americanâ€s uneasiness regarding the markets and the economy. He said that the “shoe to drop” would be seeing a rise in unemployment that may cause a “leg down” in the real estate market.

“A couple of things are going to cause it to turn in the opposite direction, meaning home prices are going up. One is certainty. And when you don’t know if interest rates are going to go up or not. I think that is what is driving a lot of people away from buying because they just don’t know if rates are going to be cheaper in two months, and they’re just going to wait,” said Roschelle.

He went on to say, “And the other thing is uneasiness regarding the economy. And I think the shoe to drop there would be if we start seeing layoffs, and we start seeing unemployment starting to rise, I think that could be something that causes a leg down in the housing market in a big way.”

Roschelleâ€s comments follow a power shift currently happening in the U.S. housing market away from sellers. 

“Right now, I would say it’s a buyer’s market. I think the power has completely shifted from seller to buyer. Doesn’t mean you don’t see some bidding wars because again, I think statistically across the country, we’re at 3.3 months supply. So that’s still relatively low. So, if there’s a house that hits the market that’s perfect, and it ticks all the boxes for buyers and there are buyers out in the market, I think you could see sporadically bidding wars, but mostly, you know, it’s one or two people chasing that house. And we’re not seeing that. We’re not,” Roschelle said.

The average home price is expected to plummet from its peak at the height of the pandemic. According to Fortune.com the price of homes in the country in October 2022 were 38.1% above March 2020 levels. Roschelle believes that the average price will drop by at least 10% from its peak in 2022.

“My 10% to 15% [prediction] is from the peak in 2022, that is where we land in terms of average home prices being down 10 to 15%. Which if we’re talking about the stock market, it would certainly be seen as a correction, but not a bear market. The thing to remember is that from February 2020, home prices went up as much as 40% to where we are today,” Roschelle explained.

You can view the CATO Institute 2022 Housing Affordability National Survey here.

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For the first time since July 2020, the index showed the housing market entered neutral territory. All but the Fayetteville, North Carolina market have moved towards favoring buyers over the last year. Last month, 51 markets were a sellers†market while 39 were neutral and 10 favorted buyers.

The shift is most notably due to declining home sales. Only 127,000 homes were sold in 100 of the largest markets in October. This is down from 262,000 a year earlier, a 51.4% decline. The median home price was $388,000 compared to $360,000 last year.

“The housing market has borne the brunt of the Fedâ€s attempt to control inflation,” said Knock co-founder and CEO Sean Black. “At the same time, it has continued to demonstrate its resiliency. Despite moving into neutral territory, sellers still hold the advantage in a majority of the nationâ€s largest metros, and many will continue to favor sellers well into 2023. With interest rates stabilizing in recent weeks and less competition, buyers may begin to re-enter the market over the next few months, which could result in a return to a more normal spring home-buying market.”

In all of the top 10 buyers†markets, the monthâ€s supply surpassed two months except for in Nashville. Las Vegas had a supply of 4.2 months. This is the largest of the 100 housing markets considered in the index. 

Phoenix, the nationâ€s top buyers†market, saw 34 days for a typical listing to sell in October. It was normal for a home to stay on the market for three weeks or more in the top 10 buyers†markets. Columbus, Ohio led the nation with 44 days on the market. 

Over the next 12 months, experts are expecting the housing market to balance. By October 2023, 26 markets are forecast to be buyers†markets compared to 10 in October 2022. 38 markets are expected to remain a sellers†market while 36 will be neutral. 

The national median sales price is predicted to peak at $416,000 in June 2023 before falling to $410,000 in October 2023. This would amount to a 5.6% increase over the past 12 months and follows a typical home-selling season. 

Inventory is expected to grow in all but a few markets. Last month, the supply was 1.9 months and is expected to increase to 3.4 months at this time next year. A balanced market is considered somewhere between four to six months of supply. This will mark the first time the market has approached a supply balance since April of 2019 when the supply crested at 3.7 months. 

You can view the full report here.

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A new report released this month by UNC Charlotteâ€s Childress Klein Center for Real Estate (CKCRE), the Charlotte housing market is showing signs of softening but itâ€s becoming difficult to find homes that are priced affordably. 

The “2022 State of Housing in Charlotte” report, says home buyers and renters in the eight-county region are entering a second year of high prices and a lack of affordable housing. According to the report, only 25% of the houses are sold for under $300,000 while 3.8% of the houses sold for half that price. 

“In particular, the prices at the lower end of the distribution have increased much faster than at the higher end, causing significant concerns for housing affordability in the region,” said Yongqiang Chu, CKCRE director and the primary author of the housing report.

The dramatic rise in interest rates in recent months has made housing affordability much worse. The 30-year fixed mortgage interest rates rose from 2.96% in January 2021 to almost 7% in September 2022.

Middle-income housing affordability is becoming a challenge for the region. For a median-priced home, the required income has increased from $89,816 in 2020 to $136,750 in 2022. This is an increase of 73%. The median home price in Charlotte increased from $237,500 in January 2020 to $420,000 in September 2022. That is a 54% increase in 32 months.

The combination of rising interest rates and house prices have made housing unaffordable in the Charlotte region.

“At some point this will become a serious concern for people who want to do business here,” Chu said. He went on to say that there needs to be an increase in supply and offered two solutions to the problem. First, make development easier by regulations and restrictions and then build on green space.

“We should be willing to make those compromises, before Charlotte becomes really unaffordable and people donâ€t want to live here anymore,” Chu said. 

While the market does continue to be tight, there are some signs of softening since this past summer. The median number of days a house is on the market has increased from three days to nine days in the months of May 2022 to September 2022. Prior to the pandemic, the median days on the market was about 20 days. 

The report also found that over the last few years, the average rent has increased by 27% per unit or $320, a swift acceleration in rental prices.

You can click here to see the full report from CKCRE.

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The index analyzes key housing market metrics to measure whether the countryâ€s 100 largest markets favor buyers or sellers. Last month, the index found that home prices in 98 of 100 were below their peak price from last spring. The markets in Providence, Rhode Island and Salisbury, Maryland were the only markets where home prices have remained at their highest since being set earlier this year. 

In 42 of the major housing markets, home prices are expected to fall further than their 2022 highs by this time next year. Of those 42 markets, 15 are in the South, 15 are in the West which is home to some of the most expensive markets in the country. The remaining 12 are in the Midwest and the Northeast. 

Of the 25 markets with the largest projected median sale price decline, 15 peaked well above the national high of $410,000. In San Francisco and San Jose California, the median sale price peaked at $1.3 million and $1.6 million in April 2022, respectively. 

Through the first nine months of 2022, just over 1.8 million homes have traded hands across the largest 100 markets in the nation. This was less than during the same time frame in each of the past four years. While still low, the supply of homes for sale has grown at a steady pace throughout this year as median days on the market increased to 20 in September. This is up by one full week from a year ago.

The average sale-to-list ratio fell to 99% in September. This measures how close homes are selling for their asking price and itâ€s the lowest level since February 2021 and also down from 100.3% in May when the prices for homes peaked nationwide. 

The co-founder and CEO of Knock, Sean Black, said that based on the findings the shift to a more balanced market is still in its early stages. “We expect that this much-needed reset will persist through much of 2023, and although prices will again begin to rebound they likely wonâ€t return to their peaks for the foreseeable future,” he said.

Black went on to say, “While many drivers of the housing market like demographics and record low unemployment have not changed, the combination of higher rates and home prices have put affordability at the worst levels in 30 years with entry-level monthly payments set to be 34% higher in 2022 versus 2021. The good news is that as prices soften and rates stabilize once the Fed is done with its aggressive rate hike campaign—hopefully, after its meeting in November—buyers will be ready to re-enter the market and sellers will retain the majority of the equity gains theyâ€ve seen in the last two years.”

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At a Federal Open Market Committee press conference in September, Federal Reserve chair Jerome Powell was asked to clarify what he meant when he said the U.S. housing market would “reset.” He answered: “Weâ€ve entered into a ‘difficult correction†that will see the U.S. housing market transition to a more “balanced” market for buyers and sellers alike.”

With that said, he still hasnâ€t addressed if home prices will fall. However at the University of Kentucky this week, Fed Governor Christopher Waller told the audience itâ€s possible we could see a drop in prices. 

“While this [housing] market correction could be fairly mild, I cannot dismiss the possibility of a much larger drop in demand and house prices before the market normalizes,” Waller said. 

This was the first time a Federal Reserve official has acknowledged that the housing correction could see housing prices fall at the national level. Waller also said the home price correction might end up being more of a small trickle down. 

“Despite the risk of a material correction in house prices, several factors help reduce my concern that such a correction would trigger a wave of mortgage defaults and potentially destabilize the financial system,” Waller said. “One is that because of relatively tight mortgage underwriting in the 2010s, the credit scores of mortgage borrowers today are generally higher than they were prior to that last housing correction. Also, the experience of the last correction taught us that most borrowers only default when they experience a negative shock to their incomes in addition to being underwater on their mortgage.”

The Fed acknowledging that home prices could fall comes after many markets are already starting to see the home prices fall. Among the 148 major regional housing markets tracked by the Burns Home Value Index, 98 of those markets have seen home values fall from their peaks this year. In 11 markets, they have dropped by more than 5%

“Prices have even fallen in some areas of the country, especially those that saw the largest increases over the previous two years. And many builders are reportedly cutting their list prices and offering larger incentives,” Waller told the audience.

Two markets are getting hit the hardest by the housing correction. High-cost tech hubs like the San Francisco market is down 7.8% from its 2022 peak while San Jose is down 9% and Seattle is down 6.2%. The other market group are bubbly markets where home prices have reached levels well beyond what local incomes can support historically like Austin which is down 6.2% along with Boise (down 5.3%) and Phoenix (down 4.4%). According to Moodyâ€s Analytics, The Austin and Phoenix market are overvalued by 61% and 57% respectively. Typically markets that are significantly overvalued are the most vulnerable to home price cuts during a housing correction. 

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For the first time in nearly three years, home prices declined 0.77% from June to July according to Black Knightâ€s Home Price Index. Black Knight is a mortgage software, data and analytics firm. While the drop may be small at less than 1%, it is the largest single-month decline in prices since the beginning of 2011. This is also the second-worst July performance dating back over 30 years, behind the 0.9% decline in July 2010, during the Great Recession.

The sudden rise in mortgage rates this year aided an already expensive housing market in becoming even less affordable. The price of homes rose abruptly during the first year of the pandemic because demand was strong while supply was historically weak with record low mortgage rates.

Currently, housing affordability is at its lowest level in 30 years. According to Black Knight, buying a house requires 32.7% of the median household income to purchase the average home using a 20% down payment with a 30-year mortgage. This is about 13% more than the median income required entering the pandemic in 2020 and much more than both of the years before and after the Great Recession. 23.5% is the 25-year average. 

“Weâ€ve been advising for quite some time that the dynamic between interest rates, housing inventory and home prices was untenable from an affordability perspective, and at some point, something would have to give,” said Andy Walden, vice president of enterprise research and strategy at Black Knight.

He went on to say: “Weâ€re now seeing exactly that, with Julyâ€s data providing clear evidence of a significant inflection point in the market. Further price corrections are likely on the horizon as we move into what are typically more neutral seasonal months for the housing market.”

Historically, prices rise on average 0.4% between June and July due to the market being heavily weighted by families buying larger homes. Most families prefer moving during the summer when the kids are on summer break.

Home prices were still 14.3% higher in July than they were a year prior. This is more than three times the historical annual price growth. However majority of that growth took place in the beginning of 2022 before interest rates increased. The average rate on a 30-year fixed mortgage began this year around 3%. Each month it slowly climbed before sharply rising to over 6% in June. Right now interest rates are around 5.75%

More than 85% of major markets have seen prices come off their peaks through July. The top 5 cities seeing the steep decline in pricing over the last few months were San Jose, CA at 10%. Seattle, WA was down by 7.7%. San Francisco, San Diego, and Los Angeles saw price drops by 7.4%, 5.6% and 4.3% respectively. 

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Some homebuyers are backing out of deals as the housing market slows, allowing them more room to negotiate while others are being forced to back out of contracts due to higher mortgage rates that are making the homes no longer affordable. 

“The slowdown in housing-market competition is giving homebuyers room to negotiate, which is one reason more of them are backing out of deals,” said Redfin Deputy Chief Economist Taylor Marr. “Buyers are increasingly keeping rather than waiving inspection and appraisal contingencies. That gives them the flexibility to call the deal off if issues arise during the homebuying process.”

Marr went on to say: “Rising mortgage rates are also forcing some buyers to cancel home purchases. If rates were at 5% when you made an offer, but reached 5.8% by the time the deal was set to close, you may no longer be able to afford that home or you may no longer qualify for a loan.”

The housing market has cooled recently as the Federal Reserve boosted interest rates in an effort to thwart inflation. This has allowed potential homebuyers more freedom to seek concessions from sellers. At the same time, the higher rates also make the home less affordable. Buyers did catch a small break last month when the average 30-year fixed mortgage rate fell to 5.3%. It was the largest one-week drop since 2008.

“When mortgage rates shot up to almost 6% in June, we saw a number of buyers back out of deals,” said Lindsay Garcia, a Redfin agent in Miami. “Some had to bow out because they could no longer get a loan due to the jump in rates. Buyers are also more skittish than usual due to economic uncertainty.”

The metro area with the most pending sales to fall out of contract was Las Vegas, NV at 27.2%. Newark, NJ saw the lowest pending sales to fall out of contract– 2.6%.. In order to be included, the metro area must have had at least 1,000 pending home sales in June 2022. 102 metro areas made the list. Charlotte came in at number 76 on the list with 11.6% of pending sales falling through.

The post Home Sales Seeing Highest Rate of Cancellations Since Start of the Pandemic appeared first on Charlotte Real Estate.

While some buyers have had to handle much larger mortgage payments, some sellers began to notice offers of $100,000 over asking price may now be a thing of the past. 

“Right now, weâ€re in this cauldron of uncertainty,” said Jonathan J. Miller, the president of Miller Samuel Real Estate Appraisers & Consultants. “Housing hates uncertainty. The biggest enemy of the housing market is uncertainty, and we have buckets full of uncertainty.”

What is causing such a shift in the real estate market? High interest rates for one. Unless youâ€re able to pay in cash, buying a house got even more expensive.

Since December of last year, mortgage rates have nearly doubled. Right now they are around 6% which is the highest they have been since 2008. All in a response by the Federal Reserve to try to control inflation. At the beginning of the year, a buyer would have paid about $2,100 a month in principal and interest for a $500,000 home loan. If a buyer purchases that home today, their loan would cost nearly $1,000 more. 

Combined with the current home prices, which rose more than 20% between May 2021 to May 2022, most buyers arenâ€t able to make adjustments for that kind of increase in interest rates. 

“Thatâ€s a one-two punch that a lot of buyers canâ€t overcome,” said Rick Sharga, an executive vice president of market intelligence at ATTOM, a real estate data company.

In 1981, interest rates peaked at 18.4%. Experts arenâ€t thinking rates will return to those levels however until inflation is under control, rates will continue rising.

“When inflation peaks, mortgage rates will have peaked, and thatâ€s really the key ingredient,” said Greg McBride, the chief financial analyst at Bankrate.com. “If we get more inflation numbers like we did a couple of weeks ago, there is no telling how high mortgage rates could go.”

Itâ€s unlikely that prices will drop dramatically but there are some signs of slowing. According to a recent Refin report, 6.5% of listings dropped their prices each week.

Prices are slightly down but demand is down too. The Redfin report also found that fewer people were searching for homes and touring properties. Pending sales fell 13% and mortgage applications were down 24%. According to Redfin, this is the largest drop since May 2020.

The market could return to levels resembling the pre-pandemic era. Homes could take a few months to sell. Buyers may be able to make a few demands again– request sellers pay closing costs, asking for appraisals and inspections– rather than having to buy site unseen or pay well over asking price. However, it is still a sellerâ€s market. According to the National Association of REaltors, the median price of a home in the U.S. rose above $400,000 for the first time.

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