When the pandemic hit in 2020, WFG began hosting Quarterly Economic Outlook webinars as a way to communicate and connect with title and settlement services professionals. Since then, the program has gained a growing following, with more than 1,100 industry professionals registering for the company’s Q1 2023 webinar in March.
Webinar attendees included real estate agents and brokers, title agents, and mortgage lenders, nationwide. According to the results of a post-event survey, the program was incredibly well-received. Newly added this cycle in support of WFG’s company-wide customer experience focus, an attendee survey was conducted immediately following the webinar, and participants unanimously confirmed that the webinar met their expectations. 99.6 percent of those responding indicated that the information presented will help them navigate their business success; 95 percent confirmed that they are very likely to attend future events.
At the time of registration, participants were given the opportunity to submit questions, which WFG Founder and Chairman Patrick Stone and fellow presenter Bill Conerly, Ph.D. answered live during the second half of each webinar.
Topics addressed during the webinar included the economy, consumer confidence, mortgage rates, property values, housing inventory and affordability, the likelihood of a repeat foreclosure boom, and trends impacting the rental, builder, and commercial real estate markets. Stone provided advice to real estate-related businesses about what they should focus on now in order to survive and thrive in the current market. The following is a summary of the key observations and predictions Stone expressed during his portion of WFG’s 1st Quarter Economic Outlook webinar.
Patrick Stone’s Overall Industry Insights
- Federal fund rates have seen the fastest increase in history, while geopolitical uncertainty, including the Ukraine war and Chinese relations, further complicates the situation.
- Without raising the Federal debt limit this summer, there could be a catastrophic effect, leading to a rating downgrade and higher interest rates. The debt limit has increased substantially over the decades, reaching $31.8 trillion in December 2021
- Consumer confidence has hit an all-time low, with only 31% expecting their personal financial situation to improve in the next 12 months.
- The sharp rise in mortgage rates has caused a significant decline in home sales, with affordability being the biggest issue.
- Despite the decline in demand due to affordability, supply has also gone down significantly, resulting in a balance in the real estate market.
- Most homeowners have a mortgage rate below what they would qualify for today, which has reduced the incentive to move.
- The luxury market is less rate-sensitive, but median prices have dropped from $6 million to $4.1 million from May 2022 to January 2023.
- Real estate prices are expected to go up in 2023, driven by limited supply and high demand created by millennials coming of age and the second-largest population bubble behind baby boomers.
- A foreclosure wave is not expected to occur, as most mortgages issued in the last three years were issued to borrowers with FICO scores over 760, and risky loan products were not prevalent.
- Mortgage rates are expected to decrease to 6.5% or less by mid-2023, 5.5% by December 2023, and near to 5% in July 2024. New construction is expected to accelerate in the fall if rates come down and people return to the market.
Patrick Stone’s Question and Answer Segment Responses
Is this cycle going to be a repeat of 2008 and 2009?
- This cycle is not a repeat of 2008 and 2009. Lenders, the FHA, and the GSEs have all maintained a fairly conservative posture since the great recession and we do not have the product or credit risk we did back then.
- Foreclosures will not go up dramatically. FICO scores are high, and owners in distress have the ability to modify their mortgage from a 30-year to a 40 year-loan.
How do resales compare to new construction transactions in 2023? Where is the market activity going to be?
- There was originally optimism for new construction in 2022, but rising rates led to a conservative approach by builders.
- New construction is likely to rebound when rates drop and market uncertainty lessens, but that is not expected to take place until later in the year.
- There has been significant underbuilding for the past 13 years, with more multi-family housing builds taking place than single-family homes.
- Home prices are expected to rise due to limited supply, with estimates of 1.8 to 5 million single-family homes underbuilt.
Will home prices go back up, making it a seller's market again, with multiple offers and offers above list price?
- It will take a full economic recovery and resolving the affordability issue for the market to return to pre-pandemic levels.
- The market will improve when rates come down and confidence is restored.
- The period from 2024 to 2029 is expected to be very good for the real estate market due to high demand and desire.
- If mortgage rates drop to 5.5 percent or lower and affordability becomes less of a factor, multiple offers are likely to re-emerge.
- Assuming no major economic disruptions and a return to demand, desire, and affordability, the real estate market could have five strong years from 2024 to 2029.
How is the aging Baby Boomer population expected to impact the housing market?
- Historically, older people have sold their homes and either moved to smaller homes or to a retirement community. That will continue, but it slowed way down because of the pandemic and increasing mortgage rates.
- Retirement relocation rates will be lower than in the past. The number of people moving has dropped in half from 1980 to 2019. 18 to 20 percent of the population used to relocate annually. This figure had dropped to 9 to 10 percent right before the pandemic.
- Things have changed psychologically. People will retire and move, but not at the level they used to.
What are your thoughts on the rental market?
- Multi-family construction surged while single-family lagged behind due to excess capital and apartment demand, but demand for apartments is now declining.
- Rent increases and owner's equivalent rent are decreasing as housing price appreciation slows down.
- Decreased apartment demand and declines in owner's equivalent rent and home price appreciation are expected to have a positive impact on the Consumer Price Index.
What are your thoughts on the commercial real estate sector?
- The commercial real estate market remains strong, except for office space and malls. Interest rates have less of a direct impact on commercial transactions than on residential ones.
- The office market is the biggest area of question in the commercial sphere. Vacancy rates are around 12 to 14%, but occupancy rates are only 48 to 49%. Work from home is prevalent and a return to the office environment may take a few years.
- Malls are having to reinvent themselves, with high-end malls doing well and average malls struggling.
- Storage has maxed out and there is not much upside in this segment.
- Industrial warehouse prices have gone up dramatically, but are starting to level off. Demand for warehouses still exists, but the impact of e-commerce is uncertain.
- The commercial market still attracts a lot of money for acquisitions and it is not as impacted by mortgage rates as the residential real estate market.
For the people in this audience connected to the real estate industry, what would you suggest they have top of mind as they roll into the middle of 2023?
- Real estate businesses need to be conscious of their expenses and have a metric to adjust staffing and expenses as the market fluctuates. It is important to make timely adjustments to avoid carrying unnecessary expenses.
- Stay current with the market and be diligent in managing expense ratios. With market uncertainty, it's crucial to be prudent and careful. Work hard to gain business, but make sure to stay in line with the current market.
- Be positive! Your customers don't want to do business with somebody that's negative. They want to do business with somebody that is positive. Stick to it.
Watch the video replay of WFG’s Q1 Economic Outlook webinar here, or download the full transcript here. Register for WFG’s Q2 2023 Economic Outlook webinar, which will take place on Thursday, May 25th, here. Patrick Stone will be presenting on “Progress and Opportunities for Future Transactions” during NS3 2023 on Thursday, June 8th at 9:15am.