The Housing Market in 2023 – Is the party over?
You have undoubtedly heard from headlines and coworkers that the real estate
market is crashing, the ‘bubble’ has burst, and with the high (and rising)
interest rates, nobody is buying or selling. But not so fast: as they say, the devil
is in the details. These kinds of headlines are as misleading as they are
attention getting. Let’s consider a few:
The market is crashing
Yes, home sales have decreased from earlier this year, and year over year.
Demand has cooled compared to last year (or the last 3-4 years!), resulting in
the drop in home sales (more than 12% from last year). There has also been in
a drop in the rate of price increase (currently 3.6% increase compared to
13.37% last year in Michigan). Definitely a deceleration from the bidding wars
of the Covid years!
But a crash? No. I would characterize this as a much-needed correction
towards a balanced market, meaning having demand more in line with supply.
We are seeing the average time on market increasing to a month or so
(depending on the local market) instead of a few days, and price increases in
the single digits. Is that a good thing? – YES! But that’s for another time…
The bubble has burst
If you’ve read what I’ve been sending, you know I’ve been saying there is no
‘Bubble’ for a long time – and there still isn’t one! I think most people are
looking at the incredible bidding wars over the last few years, and the resultant
price increases, along with the slowing of the economy as harbingers of 2008.
But in fact, 2022 isn’t like 2008 at all!
The increases in home prices in recent years isn’t a result of wild lending
practices or inflated supply. The recent increases are a result of genuine
demand for the historically low (and still low) inventory of homes available.
Because lending practices have been better regulated and most of the bad
mortgages have been eliminated from the market, the continued strong
housing market might actually help this recessionary economy towards a
softer landing, instead of causing the recession in the first place!
High interest rates mean nobody is buying
Have you heard the expression, “You date the rate, but you marry the
principal”? Savvy buyers have. While the Feds battle inflation with interest
rate hikes (you can’t pump 9 trillion dollars into the economy and not expect
this…), mortgage interest rates have risen rather dramatically. Although
mortgage interest rates are predicted to go as high at 10% this winter, they are
also expected to return to the 5% range by early to mid 2023. Why? As much as
interest rates were artificially low in the last 3 years, they are artificially high
right now (consider the inverted spread in 10- and 30-year treasury notes!).
Current mortgage-backed securities don’t fit the predictive models used by
investors, so nobody is buying them. This situation will self-correct
eventually, bringing rates back down to something more manageable. Consider
a 3/1 ARM mortgage and refinance when rates come back down. Bottom line is,
the rate you have now won’t be the rate you’ll have in a year or two, but the
slowing of the competition will bring buyers that have been side-lined back
into the market.
What does this all mean to you?
If you’re buying, you may have a little less buying power, but you’re facing far
less competition, allowing offers to be accepted without crazy terms like
appraisal guarantees, escalation clauses, waived inspections, and snap
decisions. With the right lender (ASK ME!) and the right agent (I’m applying
for that job!), this is the best market you’ve had in the last 5 years. If you were
squeezed out of the market before, now may be your chance (I’m looking at
you, First-time Homebuyer!)
If you’re selling, you may have to be patient and work for your offers. Just
pounding a sign in the yard isn’t going to work anymore. Again, with an
experienced agent guiding you in pricing and marketing, you’ll be able to cash
in on all that equity you’ve built up over the past few years!