The Recipe behind Interest Rates in 2023

Mission Forge

Bold Prediction notes brought to us by Atlantic Bay Mortgage

Dr. Yun, Chief Economist from National Association of Realtors.

Stats Pending home sales coming down due to higher interest rates. Often there will be a burst of pent up demand pendings will stabilize.

Interest rates connection to the 10-yr. treasury yields. 30 year fixed rate hit a 20 yr. high. Buyer confidence is there but they cannot afford what they want. Too much money in the system.

The two are connected as they move together as the government pays a cert

The spread between the two should be 2% but now is much larger, only seen two other times. It should erase and turn back to normal in the short term. Rates should drop into the 5% range.

Past the 7% peak, Fed activity is already baked in to bond and equity market.

Advice for Realtors in 2023 Dr. Yun says housing is cyclical. Prepare for up and down, set some aside. Look to stabilize in 2023.

Buffini’s take on the data

Fewer transactions, not catastrophically fewer. 25% fewer in Canada (2/3 of millennials will buy a home in the next 2-3 years). Rents are crushing people and will continue to rise. Since they are rising higher than the price of a house, this will push renters into the buyer market

More Contract cancellations, 63000 contracts failed in July 2022, August blew up in 64000 august, 60000 in September, 60000 in October. Many due to the competency of the agents in the transaction. Practices have gotten sloppy. Skills are rusty. 1 in 5 transactions are blowing up, largely due to sloppy agents.

Fewer agents in the business, turkey can fly in a hurricane, 200,000 will drop out by the end of the year.

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Barry Habib 2023 Market predictions

Housing related to rates, does this mean a housing bubble. Inflation is the key driver, not fed increases/decreases.

Quantitative easing also impacted rates, but that is over. Once that stopped AND inflation increased rates went up.

Inflation outlook. Too may $ chasing too few good. 90% of extra dollars is on credit, so the fed slow that down with rate hikes. This slows demand.

Savings are increasing, inventories of goods are increasing, at high level than before. This will mean sales to come. Too much inventory will help lower inflation.

The CPI or consumer price index has two measures, the core rate and the consumer rate. The core rate is 6% year over year. Made up of 12 months of readings. The new lower readings replace the older readings from 12 months ago. The expectation is that the lower readings in the next few months will keep inflation coming down. 39% of the core rate is housing. Shelter is a lagging indicator, but the lower housing figures will play out in the late winter and early spring.

Short term and mod term the trend for rates is lower.

Importance of the 10 year treasury note.

The high spike was a bet on them coming down fast and hard. The spread increased betting on refis. Fascinating.

Prediction is that around the corner in the 1st half the 10 year treasury will get nearer to 3% and the premium of the spread will vanish and rates will hit 5%. Then the flood gates will open on the pent up demand.