Finally my video to tell you what I think's gonna happen in 2023.
So the biggest question that I get on a daily basis, and even when I
do my live events and emails and everything else is, Dan, where do you
think mortgage rates are gonna go?
Where do you think home prices are gonna go?
Those are the two main questions I get asked.
So last year I did a video and I thought I gave you my context
of what I thought was going to happen in 2022, and basically
Well, here it is. So let's look at what I just said there, and it's
freaky how it's laying out now.
The Russian War is playing havoc on these things, but let's just go over some
numbers that we've seen since that time.
Now that was September of 2020.
We're about a year and a half later.
So we have housing.
If you didn't buy at that point, because you're like, okay, the housing
market we're in a bubble or so forth, you missed out on 2021, which saw
an 18% increase in housing prices.
Plus we're probably up another 2% this year, so you probably missed
out on a 20% increase in housing.
So now are you looking to jump in?
Okay. You've already seen that.
It's like trying to buy bitcoin.
You know, it was a dollar.
Now it's 40,000 Now is it too late?
I don't know.
You gotta pick your points.
Gas prices, and again, it they're crazy today because of the Russian War.
But in 2020 we were two 18 a gallon in now we're, or at the beginning of the year.
At the end of the year, we were 3.50.
Unemployment rate.
That was a good one.
Six three at the beginning of 2020.
3.9 at the end of the year.
We're at 3.8 now.
And again, so let's just keep it that way.
Mortgage rates 2.95 at the beginning, 3.24 at the end.
Now we're 4.24, so up one full percent since the end.
This is all, I'm just saying what happened in 2021?
We're only three months in, or two and a half months, three months
into 2022, and we're still seeing things going out of proportion.
So what I predicted there was mortgage rates would be about five and a half
percent, and people thought it was nuts at that time because rates at
that time, you gotta put it in context.
Were about 2.875.
So me saying that they're gonna go up to five and a half or almost doubling.
People thought I was crazy.
They said if rates hit 4%, it's the end of housing.
Okay.
So we've seen rates go all the way up to seven, almost seven
and a half percent this year.
So I missed that.
But where I did hit is, or I did predict correctly, is house prices.
I thought house prices would end the year up 5%, and I knew we'd
have this bubble up and down, but I'm still not predicting a crash.
And I'll get to a lot of that at the end of this video.
So I nailed the home appreciation on the button, but I really
missed it out on mortgage rates.
But what does 2023 look like?
So let's get over to some of these numbers.
That's gonna play a role in house prices.
In a roundabout way, but a direct way.
Let me explain.
The first thing we wanna look at is where inflation is.
And the reason why we're doing this is it's the Federal Reserve's
goal, or what their mandate is to keep inflation or prices in check.
On your screen where inflation normally is and where we are today.
Okay?
Normal inflation.
What the Federal Reserve tries to do is they try to keep inflation
at 2%, right around there.
It could uptick a little bit, but they don't want it exceeding too.
They're okay with it under 2%, but you gotta watch so you don't have deflation.
That's a whole nother animal.
You can see back here in 2021 and 2022, inflation just spiked outta control.
And a lot of it was government stimulated.
The government sent out checks to tons of people and they
kept spending money and money.
And then the Federal Reserve basically made borrowing free.
If not, most rates were zero or at their historic lows ever.
So that spurred housing and a whole bunch of other things.
But to keep this in the context, let's say, Inflation is way outta control.
So what the, what does the Federal Reserve has to do?
They have to increase rates.
So one rate that we follow is the prime rate.
This gives us a blend of where rates are have been and where they should be.
So let's get over to this.
This is where the prime rate is.
If you ever got an adjustable rate mortgage or you ever talk to somebody
about, rates, they, most people come up and they say, oh, the prime rate is this.
Okay. So let's keep that in the context.
You can see here's the screen of where the prime rate's been over history.
Back in 1980.
Yes, I was in the business in 1980.
More rates were nuts.
Let's look at where rates were here.
This is the prime rate.
Again, guys, this isn't mortgage rates, so the prime rate hit 21%.
Where is it today?
The prime rate today is 7%, so we're a third of where we were, but where were we?
Just not too long ago, before the Federal Reserve did all these.
Three and a half percent.
Okay, so if you go over this, most of the time for the past 10, 15
years, we've been about three and a quarter to three and a half percent.
Right now we're at seven.
Okay?
Basically twice the norm, right?
The next thing is, let's go over to where mortgage rates are.
You can see here where mortgage rates went crazy while the Federal Reserve.
Did you see this?
This same thing happening here as you did the prime?
Again, the Federal Reserve made, they did a lot of things, and there's a
lot of pieces of this we can put into context because they did quantitative
easing and a whole bunch of other things throughout the past few years to basically
artificially make this number low.
Okay?
They wanted to spur home ownership and they wanted to spur a bunch of things
and credit and lending and people to spend and to spur up the economy.
And they did a fantastic job.
Maybe they overdid it.
Okay.
So we saw home prices really skyrocket as well as interest rates.
So here's what we've seen on interest rates over time, but
let's just go back over the past 10 years, where's the average rate?
Because what I want to try to figure out here is what's the average rate in
a normal economy that we're sitting in?
We are not in normal times, the world has never seen a, basically a shutdown of the
whole world when it comes to labor and supplies and shipping and everything else.
It's never happened.
So nobody really has a workbook to go through and say, okay, the last
covid that happened, what happened?
Basically, we're rewriting history at this point.
Okay, so what I want to do is I want to take the averages on mortgage rates,
but I want to go back pre pandemic when things were basically back to normal.
Let's go over and just go back to basically, let's say 2008.
Two thousands.
What were the average rates during that time?
You can see here there's 6, 4, 9, 7, 5 and a half, 7, 6, 5, 6.
You can see right through here before the pandemic and before
a lot of other things happened.
The housing crash and everything else.
Mortgage rates are normally about between five and a half and six and a half.
What are we seeing today?
We're seeing rates about six and a quarter percent.
So this might be the new norm when it comes, to getting back to normal levels.
So I'm gonna go out and say, this year I'm expecting rates to be about
six to six and a quarter percent throughout the year, Q3 and Q4.
So let's talk about where we end.
I'm back to my five and a half.
I think we're gonna be back to five and a half by the end of the year, and most
economists are saying the same thing.
And the reason being behind all this is the Fed.
Okay?
And I'll put that in a little more context here in a minute.
Here's where home prices have been basically since they've been charting
this thing, you can see it's upward, it's an upward trajectory through time.
If you average this out through normal times, when you take out some
of these blips, thats have occurred.
And then, yes, in 2008 to 2010, we had a major catastrophe.
And then the world started correcting itself, getting back to normal.
But if you take this line and you take these numbers and you say, okay, if I
extrapolate these out to a, where we should be at a 4% appreciation rate,
and that's what most people think, or most studies show that home prices
appreciate on average about 4% over time.
Where should we be?
So that brings me up to this.
I wanna show you just an archaic little chart that I
put together here for you guys.
What I did is I extrapolated the data from that spreadsheet that we were just
looking at to an Excel spreadsheet.
So let's go over all the way back to 2002.
In 2002, home prices were $219,100.
That was the average price of a home back in that time.
So if you take a 4% appreciation year over.
Where would that put us?
Okay, so we go down through here.
And so in 2022, we should have ended the year at 480,000.
We were actually at 542,000.
So that means just based on these numbers alone, that the housing market
on average is about 12% inflate.
Okay, so if you're out there thinking, maybe I should wait for house prices
to drop, I'm predicting that in some of the areas of the country,
we will see a 10% correction.
Okay, I didn't say a crash because again, if you go back to the data
that we had from previously, so if you take this data and just compile it
over time at an average of 4%, That's where the correction would put us.
That doesn't put into play what the federal reserves doing.
Supplied demand the covid reliefs, COVID, pandemics, and everything else.
So in a normal, if nothing happened, house prices should be at 400 in.
I went blind again.
$480,075.
Okay.
So we are, if you extrapolate this data down a little further, basically
a couple years ahead of ourselves, so we're about two years ahead of ourselves.
So that means one of two things.
Either housing is going to stay stagnant from here, okay.
For the next couple years to bring us back in the line of where we should be.
Or that means house prices can come back in line to where they
should be, where should they be?
If you use an average over history of 4%, we should be about
12% lower than we are today.
But again, a lot of areas that we've seen have increased 20, 30, 40%
over the last two or three years.
Those places are gonna get hit much, much harder than those that
didn't really appreciate and didn't even keep up with these numbers.
Okay, so in conclusion, let me put this up and wrap it in a bow for you.
If we see the recession and actually a true recession come and be deemed that
we are in a recession, Normal cases, the last five recessions that we've had,
mortgage rates dropped on average 1.8%.
Okay?
So you can see right here from Investopedia what
happens during a recession.
Most recessions interest rates come down the spur activity.
So we're not there yet, guys.
We still have robust activity, people spending and buying and spending
and buying, thus pushing up prices.
But as we see the supply chain finally starting to break and to fix itself,
As we see people getting back to normal, whatever normal is, but if
we rewound ourselves, got rid of the pandemic, where should we be?
Mortgage rates should be about five and a half to 6%.
House values shouldn't be as much as they are today.
They're about 10% overvalued from where they should be.
Okay.
That doesn't mean they're gonna give that all that 10% back.
Okay.
So that's what I try to, I'm trying to make in the context.
So my predictions are this.
I'm seeing a completely flat housing market.
Some housing markets can be down at the tune of 10%.
Okay?
So my worst case scenario, I'm seeing a 10 to 12% reduction in
home values on average, I see home prices being flat across the board.
I see mortgage rates finishing the year at five and a half.
Doesn't mean we're gonna go straight there.
We're about six and a half right now and we have some work to do.
The main reason behind all this inflation and the Fed has deemed that they're
gonna do everything they can to make sure inflation comes back in check.
So I think they're basically at the end of their rope when it comes
to doing what they need to do.
They're finally gonna sit back and give it a little bit of time to work.
We're gonna start seeing that really work.
You can see gas prices coming down, lumber prices coming down,
commodity prices coming down.
That's gonna help everybody in everybody's pocket.
So that is my prediction for this year.
Hopefully you find it informative and valuable, and I'll put, make sure I
put all the content in that you can do all this research yourself down below.
So all these links to all these places that I showed you and went over to
give you the content behind everything.
Will be available for you right down below in the description so you guys
make a determination on what you.
I'd highly appreciate it if you guys would, leaving the comments down
below what you expect and the why's.
And the why's.
What I don't want is the world's gonna crash.
Housing prices are gonna be the worst ever, and that's it.
Please provide your context behind it so we all can learn together.
So my name is Dan Frio.
I am actually a mortgage advisor.
If you need any assistance with a mortgage, if you're looking to try
to get pre-approved to buy your first house, maybe your first investment
property, we'd love to help.
To do that, all you need to do is go to the rate update.com.
Here's all the information you need to get ahold of us so we can
make sure we help you in 2020.
Thanks so much for watching.
God bless.
I'll see you soon.
Bye.