January 1st 2023

Happy New year!  

Welcome to your 2023 market update! In the midst of a current recession, the Fed cracking down on inflation, higher interest rates and misleading headlines, it's hard to know what's right and what's wrong. I've tried fortune tellers, homemade time machines and crystal balls but unfortunately I haven't been able to visit the future and get you all the details... however, we do have some great data available that will help us understand what's going on and help us predict where the market it headed. So let's break it down!

Market factors  

Before we address the question that everyone wants to know. "Is the market crashing?" Let's dive into the different factors that determine the answer to that question.

The 2 driving forces behind the housing market are affordability and supply.

-High Affordability/Low Supply: If there is high affordability, meaning more people can afford a home, and low supply of homes available, the market will continue on an upwards trajectory until something changes.

-Low Affordability/Low Demand: If you have low affordability and low supply of homes for sale, the market will remain stagnant until something changes. In order for us to have a significant market shift, we have to see low affordability and a high supply of homes on the market. So let's take a look at where we are currently in this market. 

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Affordability 

Higher interest rates have certainly helped pull down record high sales we saw in April of 2022. In April we saw the median sales price peak at $835,000 and has since fallen to $725,000 in December. The main question floating about is how long will this downward trend continue and if it does, how far will it fall. In order for us to more accurately predict this, there are a few more factors we need to look at. Although prices have dropped 13% from the peak, that still hasn't fixed our affordability issue. As of today, mortgage rates are sitting at 6.14% for a 30 year fixed rate conventional loan. this is over double where it was last year when it was at a mere 2.83%. As of today, a mortgage payment on a $600,000 loan, excluding property taxes and insurance, will run you $3,651/month. If you took that same loan amount with last years interest rate, it would knock off over 1k each month and put you at $2,474. To help better put this in perspective, last year you could have purchased a $930,000 home and would have the same payment that you would have today on a $650,000 purchase. So... if affordability has dropped by 30%... why haven't home prices dropped by 30% to match? 
 

Supply 

The truth of the matter is, most people just don't have to sell. Yes, there will always be people who need to sell due to job relocation, divorce, growing families, or lifestyle changes, but the vast swath of people are sitting on a 2.5-3% interest rate and don't want to sell and get into a 6%+ interest rate on their next purchase. Although the supply of homes has increased slightly, this isn't due to more people selling but it is due to not as many people buying. Currently we have seen the number of new listings drop for 6 months straight and are the lowest they've been in in over 15 years! This record low inventory has kept the market from falling harder than the 13% hit that it's taken. Currently we only have 1.8 months of inventory on the market, in order for the market to change more significantly we would need to see that number jump to over 6 months supply. If we were having this conversation over the holidays, this is usually when one of my uncles would bring up the fact that "yeah but all of those people who went into forbearance are going to get foreclosed on and that'll flood the market with more supply." Well we have all seen the headlines that read "foreclosures are up 200% from last year," however, it is important to note that there was a moratorium on foreclosures! Foreclosures weren't even happening so of course the numbers have gone up from almost 0. However, they're well under where they were pre-covid and still near all time record lows. 

Predictions 

As you can see, we are currently in a market where we have low affordability, but also low supply of homes for sale. Basically buyers and sellers are at a stalemate and until something changes, the market should remain fairly stable. Now it is likely that it'll shift by a few percent this year but the idea of home prices falling another 20-30% doesn't seem to be in the cards anytime soon. More then likely we will see home prices stay within 0 to -5% growth this year. It is important to note that every market is different and some markets may react differently to the data but overall this is what we can anticipate. If you have any questions about your property or what buying a home in this market may look like for you, don't hesitate to reach out.