Week-End Review 12/30/22

Well, we made it through Christmas and the New Year awaits! Can’t wait to see how 2023 unfolds. So, what can we expect for the Real Estate Industry this coming year?

First, there is still a supply shortage in the US. There simply is just not enough real estate inventory. In 2022 overall construction starts rose about 17% and are expected to remain flat in 2023. That’s a good thing relative to the current economic environment. There are a couple of (obvious) key factors that will affect us this coming year: Mortgage Rates and the Average Cost of a Home. Experts are estimating that there will be a rebalancing of the market. Rates should come down in 2023, as well as the average cost of a home. Potentially good news, right?!

The past two years we’ve seen unprecedented low interest rates. The housing sector has been red hot. Now even though the holiday season typically sees home sales slowdown, this current trend has more to do with rising interest rates versus seasonal shifts. Yes, mortgage rates are higher than before, but rate hikes from the Fed are really serving to position the housing market back to where it should be historically. Granted, consumers will need to adjust their expectations. Not an easy thing given those pandemic level interest rates!

Speaking of expectations, what should we expect in the housing market this coming year? First, we have to keep in mind that mortgage interest rates do not move in lockstep with the Fed’s actions; however, they do respond to inflation. Therefore, lower inflation news and positive signals from the Fed will influence mortgage rate movement more than the most recent 50 basis point rate hike. Quite frankly, we don’t know, right? No one has a crystal ball, but that being said, if the Fed sees inflation coming down cumulatively over each passing month, we should see mortgage rates begin to stabilize and even trend down.

Let’s look at home prices for 2023. Yes, even though demand has cratered, we still have low inventory. More demand than supply, yet we are seeing areas that saw rapid price increases during the pandemic now experiencing dramatic slowdown in market activity. Homebuyers have been sidelined due to affordability issues.

All that said, we’ll see. Overall, I expect to see a slowdown year over year, but that being the case, sales and inventory will have to slow down significantly before we see a big drop in values.