Throughout this past year, I have done my best to explain the very unique nature of our local real estate market as we trudge through a stubbornly sluggish economy. There are many different statistics and measurements we use to help us understand the variables that affect the trajectory of home values, supply and demand, and a host of other important factors. Each month, we touch on one topic or measurement that I feel will best answer the biggest questions I am hearing from clients as they try to make a decision on buying or selling a home. In my “Year in Review” edition of Nerd Talk, my goal is to give you a more macro, high-level synopsis of everything that transpired over the previous 12 months so we may understand what could lie ahead as the new year begins.
The analogy I gave for 2022 was that of a plane flying high, losing its engines and falling out of the sky, but landing gently onto an open field. Yes, it was scary, but there were no casualties. In that same vein, I would say that 2023 had the surviving plane-full of people sitting more-or-less stationary where they landed and just waiting to see if the “crashed” plane was going to blow up, which it did not, while also waiting for someone to rescue them. Why such an analogy? I use this analogy because it’s helpful to keep all things in proper context. By many standards, the last year was not a bad year for real estate, despite all of the negative news and the anxious uncertainty. It was just very, very quiet. Homes took longer to sell and had relatively few showings. Values did drop for a period of time, but overall the median sales price has come back to where we began in 2022. Make no mistake about it, buyer demand definitely took a very serious hit with the four additional rate hikes that the Federal Reserve did following the seven hikes they did in the previous year. The 8% mortgage rates that we saw by the end of the year caused listings under contract (demand) to drop to the lowest levels since 2008…BUT, people were, indeed, still buying homes.
With that said, however, housing inventory has remained at very low levels, and there certainly has not been a wave of foreclosures hitting the market. Quite to the contrary, in fact, as foreclosure listings are still at historic lows. The vast majority of homeowners have significant equity and enjoy a mortgage rate below 4%, and are current on their payments. Serious delinquencies are at a 17 year low and are still 25% below pre-pandemic levels. Still, there are doomsayers all over the internet and beyond that continue to predict another massive housing crash, but to date their predictions have fallen flat and nothing in the data suggests that they will be any more accurate in 2023. It’s easy for a person to say that the world is going to end, but when it doesn’t, they can always just create a reason why it didn’t and then find a new date on the calendar to be afraid of. This way of thinking is dangerous and can even be self-fulfilling, as fear is the predominant reason that causes sellers to dramatically reduce their prices and for buyers to decide to not buy.
So then, where might we be headed in 2024, you might ask? Well, that’s always a difficult question to answer with any real degree of accuracy, particularly with it being an election year and with interest rates being so wildly unpredictable. What we do know is that our market index is back on the rise, with buyer demand getting a slight bump since mortgage rates are back in the mid-6% range. Inventory is still low but is in balance with demand, so home values will likely remain stable in the short-to-mid term. Sellers should expect it to take a little while to sell their home (60-90 days) and also should be realistic about their list price. Buyers should expect to pay fairly close to list price, but will have more negotiating power when it comes to asking for closing costs or a rate buy-down. If rates continue to drop, we will likely see demand increase, and if inventory doesn’t increase with it, we’ll be back into a seller’s market before we know it and values will climb. The Fed has suggested that we could see some rate cuts in the 2nd half of the year, but that remains to be seen, of course. If inflation continues to decrease, the prospect of those cuts becomes more likely. I will continue to keep you informed as the year unfolds, but overall, I am optimistic about the 2024 housing market. If you or someone you know is looking to buy or sell a home, now or in the near future, please give me a call. I’d love to talk nerdy with you :)