Predictions for the 2023 Housing Market

How will the Fed stop housing inflation?

The Fed is putting a halt to the Pandemic Housing Boom by selling bonds making the mortgage rates rise, and slowing the housing market down.

The current housing market has been deemed the Pandemic Housing Boom because of the rise in buyer demand during the pandemic. This coupled with historically low mortgage rates and super low housing inventory caused the home prices to rise drastically. The Fed hopes this will not be the case in 2023.

When the pandemic hit, the Fed started to purchase bonds making the mortgage rates drop to historical lows. The rising inflation has pushed the Fed to start selling bonds which will cause the mortgage rates to rise. Within the past six months, the average 30-year fixed mortgage rate went from 3.1% to 5.7%.

The rise in the mortgage rates has cooled off the rise in home prices. Unfortunately, it has also put a damper on many borrowers’ dreams of owning a home. Borrowers are having a harder time with the debt-to-income ratios and have lost their mortgage eligibility.

According to Zillow, home prices will jump an additional 9.7% between May 2022 and May 2023 instead of what has been seen over the past year of a rise of 20.4%. This slow down will still be double the average annual home price appreciation of 4.4%. Zillow has changed its views in the last few months cutting its price growth by 8.1% percentage points in the last four months. CoreLogic predicts a slower rise of only 5.3%, while Mortgage Bankers Association predicts a 3.1% and Fannie Mae a 3.2% increase.

“The trend appears to show that the market passed an inflection point for home values between April and May, transitioning from ever-hotter to somewhat-cooler price growth. This deceleration is a clear signal that buyers are dialing back their demand for homes in the face of daunting affordability challenges,” wrote Zillow economists in their latest outlook.

Some such as Capital Economics predicts home prices to fall 5%. This has only happened twice in the past
five years. Moody’s Analytics believes that there will be a 0% rise in some areas even seeing a 5% to 10% decline in home prices.

“Mortgage rates are rising and will reach 6.5% by mid-2023. As a result, mortgage payments as a share of income will exceed the peak seen in the mid-2000s. That will cut home sales, with existing sales ending 2022 more than 20% down from their end-2021 level. House prices will also decline as affordability constraints bite, but tight markets and a lack of forced sellers means we expect the drop to be relatively modest, with annual growth falling to -5% by mid-2023,” wrote Capital Economics in its latest outlook.

“The housing market has peaked. … Everything points to a rolling over of the housing market,” says Moody’s Analytics chief economist Mark Zandi.

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Will There Be Fire Station Closures on the West Bank?

The east bank of Jefferson Parish consolidated its fire districts many years ago, and they are considering doing the same on the west bank of the parish. Jefferson Parish Council is currently conducting a study to see what would need to be done to consolidate the six west bank fire districts.

The study which was unanimously approved now needs consultants. The Jefferson Parish Council will now take between eight months to a year to find a consultant who will do the study. If the study goes as the council predicts, then it will lead to closing fire stations and putting trucks into storage. This does not sound too appealing but according to firefighter Deano Bonano, this could mean additional firefighters would need to be hired.

“If you consolidate all the districts, you can eliminate some stations, eliminate some trucks and cut back on administrative staff and costs,” he said.

Through the years, west bank fire departments have had a harder and harder time with financing and keeping firefighters. The department has both volunteer and paid firefighters. The west bank volunteer departments are run as private non-profits with their own boards.  For some of the smaller departments in the parish, it has been hard to get volunteers. The training requirements are very strict for volunteer firefighters.

These small districts are having to tap into financial reserves to hire paid staff to fill the positions not filled by volunteers. State firefighters are also not able to work in the departments because the districts are not part of the state firefighters’ retirement system. The benefits of the government-run fire departments are also taking qualified firefighters from the area.

The study will take these issues and others into account as they concluded how much it will cost every year for Jefferson Parish to run a west bank consolidated district. They will look at every issue as a big picture.

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A New Orleans Lakefront Condo Under Controversy

The Pearl condominium, a planned new residential development on the Old Basin Canal in New Orleans, has some flooding concerns. The West End development is being proposed by Oceana USA LLC and is located on South Roadway Street across from the Municipal Yacht Harbor.

The project will be on a segment of the New Basin Canal that is north of the Sewerage & Water Board’s Pump Station 12. This puts the development outside the lakefront hurricane levee. The original project was to be 15 stories but was revamped to six floors of condos, parking, and amenity space. The larger and smaller concept of the project needs 800 cubic yards of fill material to be added to the canal. This means that part of the building and its balconies would be built on what is current canal water.

This is why many such as the Lakeshore Property Owners’ Association, the Municipal Yacht Harbor Management Corp. and the Southern Yacht Club, as well as several tenants of nearby boathouses, are concerned with this project going forward. If they were to fill 800 cubic yards of the canal, this would make it more narrow increasing the potential of flooding boathouses and businesses that surround the project.

The canal is very important when it comes to rainfall runoff. In fact, it serves as the outlet for rainfall runoff pumped from about 1,600 acres of the Lakeview neighborhood by Pump Station 12, and if the pump station is operating during high tides, the narrowing of the waterway could cause water levels to rise a foot or more.

Oceana defends its project saying the canal would not increase water heights high enough for concern. The engineering firm that is working for Oceana points out that the canal is only 165 feet long and the water level raised in the area would only be around 10 inches. Changes would be unnoticeable in other parts of the harbor and the lake.

“While we generally support future development in our city, our utmost priority is to protect our canals from any potential negative impacts that may diminish our ability to pump storm water,” S&WB Executive Director Ghassan Korban said.

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Two Additional LNG Contracts for Venture Global

Venture Global LNG has several facilities across south Louisiana. They are responsible for the liquefied natural gas (LNG) export terminals. ExxonMobil LNG Asia Pacific has signed a contract with Venture Global LNG to purchase 2 million metric tonnes of LNG yearly. Plaquemines LNG facility will provide 1 million tonnes of LNG and Cameron Parish LNG facility will provide the additional 1 million.

The Cameron Parish LNG will begin construction in 2023 and the Plaquemines LNG facility will open in 2024. Both of these facilities will also supply LNG to New Fortress Energy Inc. Plaquemines LNG will also supply LNG to a Shell affiliate. Venture Global also has Delta LNG in Plaquemines Parish which is already producing LNG.

“We look forward to working with Venture Global as we continue to grow ExxonMobil’s
LNG portfolio and progress our plans to reliably deliver natural gas from the U.S. Gulf Coast to global markets,” Peter Clarke, senior vice president of LNG for the ExxonMobil Upstream Company, said in a statement.

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Good News For Affordable Housing

President Biden has said that inflation is on the top of his list and will be addressed. It is reported that this is the worst inflation the U.S. has experienced in forty years. The action plan announced was to increase the supply of affordable housing.

The administration concurs that this will help close the affordable housing gap and “ease the burden of housing costs,” noting that housing prices are a key driver of inflation. This will help the country get the high prices of US homes under control. The S&P CoreLogic Case-Shiller US National Home Price Index reported a rise in home prices of 19.8% year-over-year in February and rent is up 20% over prices seen this time two years ago.

For regular homeowners or those looking to buy a primary residence, this market is challenging. The administration also wants to guide the number of institutional investors who can purchase single-family homes. Another issue that will be tackled is the supply chain challenges and the improvement of building techniques. To ensure that all the construction from 2022 is completed and ready for a homeowner.

The housing shortage has been a big issue and will be addressed. Along with getting more inventory out there, the proposed legislative actions will also put measures into place to help ease costs. These will include tax credits for low- and middle-income home buyers and a proposed $25 billion for grants for affordable housing production.

“The Plan’s policies to boost supply are an important element of bringing homeownership within reach for Americans who, today, cannot find an affordable home because there are too few homes for sale in their communities. And it will help reduce price pressures in the economy, as housing costs make up about one-third of the market basket for inflation, as measured by the Consumer Price Index,” the White House said in a fact sheet.

Housing experts are excited about the administration’s plan but do report that it will take time to fix. It is great that the private and public sectors are coming together to help address the housing supply and the increased prices on homes.

“This is the right focus,” Dennis Shea, the executive director of the Terwilliger Center for Housing Policy said. “We’ve under built the housing supply by millions of homes over the past 20 years. Efforts to increase the supply of homes should reduce housing costs for people looking to rent or buy a home.”

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