(Updated from January 2023)
As 2023 wraps up it’s interesting to revisit my predictions, or rather educated guesses from a year ago on real estate. Turns out I was not surprisingly too far off. The year in real estate turned out how many predicted it would—a calculated slow down in spite of continued supply constraints.
The good news is after eleven interest rate hikes over the past two years, we are beginning this next year with inflation much more in check. We are currently under 3% whereas last year it was more than double that. Mortgage rates are currently well under this year’s high at 6.375% with an additional cut(s) expected sometime in the second quarter of this next year. June maybe?
New home construction starts have rebounded dramatically in the fourth quarter of this year, with new home permit applications at a 1.5 year high. Builder confidence in the coming year is also elevated.
In spite of all of this trending in the right direction, we still have a massive supply and demand imbalance and the fed may just decide to keep rates higher for longer given the positive impact on inflation seen thus far. There is still more work to be done to get inflation down around the 2% annual goal.
Resale home prices also still have not corrected downward, in fact have been bolstered by the ongoing lack of supply which until recently new home builders have not been able to address with additional housing stock. The National Association of Realtors reports the nationwide median existing home price still rose year over year once again— about 4.5% to $387,600 up from lat year’s $370,700. Not surprising as there still just aren’t enough homes on the market to meet demand especially in the entry-level, first-move up categories.
Though I am optimistic about the market making a rebound and eventually becoming more balanced as more homes new and existing are available for sale, there is still a lot of potential change and upheaval within the industry in regard to ongoing commission lawsuits, mansion taxes, and election year dynamics. I have been though real estate cycles dating as far back as the early 90’s and I am not intimidated, but rather curious and motivated to stay on top of the shifts in and impacts to my industry of choice.
As Warren Buffet is credited with saying, “ Be greedy when others are fearful and be fearful when others are greedy.” By “greedy” I believe this to mean accelerate your effort. In 2024, I plan to do just that come what may!
Below is my prediction from last year for reference:
When you look at interest rates and the slow fall of inflation, it might feel like the world is crumbling in – but it’s not.
High inflation is everyone’s enemy.
Let’s take a look back a year when the market was at the tail end of an unprecedented craze. Home price growth was out of control, buyers watched as the market walked away from them, and inflation was eating hard at everyone’s wallet. A slow real estate market may be frightening, but nothing can be more damaging to our economy than high inflation. As painful as higher interest rates are today, the Federal Reserve has to reign inflation under control. It’s taken time, but inflation is now steadily declining and under 7%.
Interest rates impacted buyer demand.
Over the past few months, elevated mortgage rates have put much-needed pressure on the overheated housing market. As interest rates rose, buyer demand dropped. As a result, some potential buyers have been priced out of the market, while others are choosing to stay on the sidelines hoping that rates will drop back down in the future.
However, for those buyers who’ve remained in the market, the decrease in demand has been a welcomed relief. They no longer need to rush to make an over-asking all-cash offer on a property and can now take some time to consider their options. As a result, out-of-control bidding wars have ceased.
Supply and demand hold up home prices.
Housing supply and inventory remain a challenge. While buyer demand is no longer as strong as at the start of 2022, there are still plenty of buyers hunting for a new or second home. However, not as many sellers are testing the market by listing their properties, and new construction has slowed. With a lack of new inventory comes supply constraints. In November, the US single-family construction starts and applications for building permits dropped from October figures by 4.1% and 7%.
Ultimately, high mortgage rates aren’t having as significant an impact on home prices because supply remains limited. November marked 129 consecutive months of year-over-year home price increases, setting a new record for the industry. The National Association of Realtors (NAR) reported a 3.5% increase in median existing-home sales prices to $370,700, which shows resilience even though there’s been a decline from June’s peak of $413,800. This trend appears set to continue, with no signs yet that it will slow down anytime soon.
The real estate market remains strong, and both buyers and sellers should have confidence in their transactions.
What does 2023 hold for the housing market?
As inflation drops, rate hikes are no longer as aggressive, and we might even see interest rates start to come down by the end of the year.
Many ask, will the market crash? It depends on which economist you ask, but probably not, however, a continuing correction is expected. US home equity remains high, and unemployment remains low, effectively eliminating the possibility of a crash as we saw in 2008.
How should you approach buying in 2023?
The market remains strong, but buyers now have more breathing room to consider their options. If you’re waiting for home prices to drop, you might be waiting a long time for an outcome that could never happen. Instead of waiting for the market to shift, focus on buying a home that fits within your budget and needs.
How should you approach selling in 2023?
The market has peaked. If you’re thinking of selling, don’t wait for the market to drop even more. Supply remains constricted, and there are still plenty of buyers in the market. Work with a listing agent who understands the market, strategic pricing, staging and marketing. Cynthia Pratte-Smith (775) 691-9442.
