Market Reflections & Predictions 2022/2023
2022 recap
New construction costs continued to rise…again
If you read my 2021 recap, this is old news. The cost of new construction was up there again in 2022. Costs rose steadily throughout the year. By the end of 2022 demand had started to taper off in comparison to the two years prior, strongly due to costs. In 2021, the wildcard was lumber. In 2022, it became most building materials across the board. Lot availability and expensive labor are also large factors.
Prospective buyers are really having to think hard about whether a new construction or existing home is right for them. Both have pros and cons when it comes to cost. Think about it. A new house costs more per square foot, but you’re likely getting exactly what you want design wise. An older home may have more space, but that’s more space that is likely in need of updates or repairs. My advice would be to weigh out both scenarios and decide what’s best for you. Location and lifestyle should be at the forefront of your decision making.
Interesting stat: 12% of buyers purchased a new construction home, compared to 88% of buyers who purchased an existing home.
Existing home inventory stayed low… again
You really have to ‘zoom in’ to our hyper local market to keep a true pulse on what things are doing and how they effect you personally. In our local market, inventory stayed low in 2022 although it did start to tick up some by the tail end.
Interesting fact: In January 2022 we had the lowest recorded inventory in 23 years, since 1999.
The first half, heck-the first three quarters- of the year you could pretty much bet your bottom dollar that you’d be in a multiple offer situation if you listed a decent house for sale. If you listed a great house for sale, there was no telling how many offers you’d get. I think the record we had was like 38 offers on something. I would say the norm hovered in the 8-10 range. Money was cheap, and people had the itch to move.
We had a lot of buyers take advantage of buying a home, then selling theirs after the fact and utilizing a mortgage recast. This allowed them to buy the new home without a home sale contingency with a lower down payment, then ‘recast’ their loan terms and down payment amount once they sold their previous residence and had an additional lump sum of money to put down.
Interesting fact: The average purchase price was 100% of list price. *I’m honestly surprised this number wasn’t higher given all the multiple offer situations. I would imagine in our hyper local area, this percentage may be higher.
Rates increased
As we all know, mortgage rates increased substantially from the beginning of 2022 to the end of 2022. And that had a huge factor on housing affordability. As rates rose, this began to stifle the craziness.
But remember, like everything else there’s more to this than meets the eye. Check out the graphic above for an example showing the increased rates, but also showing the difference of securing something at list price versus having to pay substantially over list price in order to secure it.
In my mind the folks this affected the most, and will continue to affect are the people who already own a home with a low mortgage rate. To think about selling that home, purchasing a new home, and going from a rate in the 2’s to a rate in the 6’s is a lot to swallow. You have to really have a reason to want to move in order to justify those numbers.
The other segment of buyers affected are first time buyers, but it’s two fold. Housing affordability was already a challenge for first time buyers due to inventory. Couple that with higher rates, it makes it even tougher. However, if you’re currently renting, that’s going up too. At least with a mortgage, you have an asset and you have a locked rate as a hedge against future inflation.
When it comes to rates, get creative. There are lots of programs out there if you look for them that might lessen the blow.
Overall, the takeaway on rates is that it will do everyone well to accept this as our new normal. Buy the best thing that you can afford comfortably, and be pleasantly surprised if the time comes that you can refi to a lower rate.
Looking forward to 2023
Now that we've spent some time looking in the rearview mirror at 2022, let's jump ahead to this year's thoughts and predictions.
A new balance
Overall I think this is the year that we work our way back towards a balanced market. If we think back several years, it was not uncommon for a home to be on the market for a month or longer before getting a contract. It was not uncommon to be able to take your time and look at multiple homes before deciding what the best fit was for you. Everyone needs a mindset adjustment after coming off the last 2 years. If you take a beat, you’ll start to realize some silver linings exist.
A tip for the sellers
It is more important than ever to pay attention to the details before you list your home. This means being proactive and spending time on the front end to properly present your home for sale. This may include repairs, cosmetic updates, painting, cleaning, staging & more. It most definitely includes professional photography. With demand cooling a bit, you have to put your best foot forward as a home seller. It’s still a great time to sell a home, you just have to go into it with a gameplan.
You also have to be extremely mindful of how you’re pricing the home. When you review comps, are you looking at list prices from 6 months ago, or sales prices? Just because someone was willing to pay $30k over list last Summer, doesn’t mean that is still the market we live in today. You need to adjust your expectations to align with the reality of today. You can still get a great price for your home, the avenue of arriving there may be a little different.
Silver linings
The first silver lining… honestly across the board… is that people will have a minute to take a breath. Don’t’ get me wrong, things will continue to move quickly, but overall folks should be able to make well thought out decisions before pulling the trigger.
I see more off market deals coming to fruition than in years past. I think relationships that we maintain as agents will be more important than ever to help make deals happen.
As a home buyer, you get some of your leverage back in being able to write sound offers with typical contingencies and protections, and actually be able to compete to get the house.
Are we going to crash?
Yes, we still hear this question. I’m just going to copy and paste this answer from last year, because it STILL applies well.
I get this question all the damn time. I'm no economist; these are just boots on the ground thoughts. But my answer is no. Even if you make the argument that people are 'overpaying' for homes, they still qualified for the mortgages. The crazy loans of the early 2000's aren't happening again. Even if the market has a correction and values go down, in my head that just means people stay in their home longer while they wait for values to come back. But wait… that then contributes to even lower inventory, which is where we are today driving prices up. I see things slowly 'leveling' out at some point, but not crashing. But that's just my two cents worth.
Even as values/prices ‘go down’ AKA ‘go back’ to normal, homes are still appreciating year over year with a more normal return. The list prices of homes are not decreasing, it’s just peoples willingness to pay way over that list price that is.
Strategies for navigating the 2023 market.
Be proactive. So many deals happen simply because you have the right connections and channels in place to find them. If you fail to plan, you plan to fail.
Another tip I would give is don't try to time the market, time what works in your life for your family. Don’t get too hung up on interest rates ticking up. Yes interest rates are important, but we are spoiled. Historically, even rates in the 6’s are good rates. Do be aware the rate change can affect your buying power.
Don't get hung up on interest rate. Yes, you need to be able to afford your home and your payments comfortably. But I challenge you to look at it in the context of your situation. What's the opportunity cost of waiting? Are you staying with your in-laws, do you want to get your family settled? What's that worth to you? Are you renting and looking at another 6 months to a year in rent payments if you don't pull the trigger? 'Overpaying' is relative. Last year we were talking about ‘overpaying’ for a house in dollars. This year we’re talking about ‘overpaying’ for a house in payments. At the end of the day, a house is where you live your life, and that’s worth something.
Wanna talk further? Give us a shout.
*All stats were pulled from the 2022 NAR (National Association of Realtors) study of home buyers and sellers.
