Real estate and what is happening in the market is a very popular topic and is getting headlines on local and national news outlets.
Amid the doomsayers, there is a still some hope about what may happen in 2023 in the real estate industry.
It’s ok to be optimistic about what may come, but it’s important to also understand what is actually happening and embrace the market we have right now.
We have begun to see some easing in mortgage interest rates over the past month. This is the path to stemming the decline we have seen the past six months, however, the real estate market is a like a barge. Changes in direction are not abrupt and come quite slowly.
The truth is, no one can predict the future and know exactly what is in store for the future of the real estate market. We have some ideas based on trends, which we will see how they play out.
If you’re like me, you don’t have time or care to read a long post full of charts & graphs. So here is the gist of it:
Mortgage rates doubled from 3.45% in January to 6.9% in October. We saw huge numbers of new listings in early summer as well. Many sellers who are actively trying to sell their home are not wanting to accept the fact prices have gone down slightly and are not adjusting to the reality of the market.
Add all of these factors together and it led to a slow down, fewer homes are coming on the market and the number of homes selling is about half of average. It seems sellers and buyers are in a holding pattern to see what happens…
Let’s take a look at some data and see what has happened in the market the past year.
The market had significant change take hold in May & June of 2022. I refer to May as the peak of our market and a lot has changed since then. There was a significant trend upward from November 2021, so even though we have seen things cool off since May, most metrics are still higher than they were a year ago.
The chart above shows the median sales price each month for the past 5 years (median price is the middle point of all sales, one half above and one half below). There was a significant increase from May of 2021 through May of 2022, which was fueled by low interest rates and historically low number of homes for sale.
The average mortgage interest rate was 3.45% in January 2022, per Freddie Mac, and we saw significant increases, with a peak of 6.90% in October 2022. These increases in rates led to less demand and ultimately lower prices.
As rates began to rise, we also saw an increase in the number of homes coming on the market for sale. April through June were unprecedented and helped to change the dynamic of the local market, which had favored sellers but became much more balanced.
July & August were much more in line with traditional activity, but since then we have seen much less activity and fewer and fewer homes coming on the market for sale. I believe this trend of fewer new listings is due to some market seasonality, but the cooling of the market & slight decline in prices has many potential sellers on the sidelines waiting to see what happens with prices & interest rates.
The number of homes sold has also declined since the summer and November was unusually low.
I believe the sticker shock of increased interest rates and fewer homes to choose from has many buyers on the fence and waiting to buy a home. Add in the seasonal slow down for the holidays and we will continue to see below average numbers in the housing market.