For those of you who enjoy roller coasters, the 2023 market may not have stressed you too much. However, for those who steadfastly refuse the brave the G-forces of amusement park rides, and make their investment decisions with similar aplomb, the last couple of months have likely tested your intestinal fortitude.
I wish I could tell you it would get better soon, but...
The story we are writing for 2023 is still being driven by interest rates. Between March and April, interest rates dropped 1%, to a nearly palatable 6.1%. As expected, this drew more reticent buyers off the sidelines. After all the hype about home prices falling and homes sitting on the market for weeks on end, many of these buyers were sorely disappointed when they didn't encounter many desperate sellers willing to consider rock-bottom offers. As a matter of fact, the exact opposite is true - with 14 out of the 17 biggest cities in the area solidly back in a seller's market, according to Cromford Reports. As a matter of fact, the Days on Market stats have fallen from 9-11 weeks to just 2-3 weeks in many areas, from listing to contract.
Sales price measures have been steadily rising through the start of 2023. While prices are still down from the same time last year, home values have recovered much of the losses experienced in late 2022 and early 2023. Despite, or perhaps in spite of, continued high-interest rates, extreme volatility in the mortgage markets, and bank failures and the resulting banking fears, one would think that market prices would be reacting very differently. How is it even possible that prices are still rising?
Demand is down about 18% below normal, according to Cromford, but that is only one side of the equation. SUPPLY is down 40% from what we would expect to see this time of year. And to add the cherry on top, home construction permits were down 74% between March and December of last year. There are simply not enough homes coming on the market to replace those going under contract, so the demand continues to exceed supply. Hence, rising prices.
Is there any relief in sight?
Right now, there is little enticing sellers to sell. For those with mortgages, it may be attractive to cash in the home equity they have banked and move up. However, the math is against these potential sellers, since they would be giving up their rock-bottom interest rates on their existing mortgages, in order to spin the roulette wheel on interest rates on their new homes. In all likelihood, they will have higher payments on their next home, even with a large down payment after the sale of their old property. That's a calculus that would scare a lot of people off.
Relief is not going to come from foreclosures and short sales, either. Foreclosures are still at an all-time low, and there really isn't any evidence to suggest that will change. The one potential bright spot is in the short-term rental market. Occupancy rates have been lower than expected, and regulatory changes may lead a few investors to unload some inventory after the seasonal peak. However, it's unlikely that there would be enough of a bump in available listings to meet demand.
Leading indicators seem to suggest that upward pressure on prices will continue. Seller concessions, which happen when buyers have some muscle to request interest rate buydowns, below-list offers, etc., to seal the deal, have been falling (52% in January to 39% just a week ago). As supply declines, these concessions will also decline and prices will continue to ratchet up. Our advice to buyers who may be waiting for prices to fall or for interest rates to decrease further is to stop waiting. You likely won't get a better deal than what you get right now. Even if you are able to time it just right to get a lower interest rate, you may end up paying a higher sales price. Any significant drop in interest rates could open a floodgate of more buyers, without any indication that sellers are ready to give up their 2-3% interest rates that they locked in prior to 2022. This will only put more pressure on prices.
Timing the market hardly ever works. We are always looking in the rearview mirror. Don't be caught in a shoulda, woulda, coulda scenario a year or two down the road.
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We are here to help! If you want to find out how much your home is worth in this strong market, email me at [email protected]. We would be happy to help you determine if the time is right for you to sell your home or buy a new home.
Data and analysis derived from ARMLS and Cromford Reports.
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