The current housing market slowdown may just be a "good thing" after the crazy, break-neck velocity of sales in 2021 and the first half of 2022. This market correcting itself had to happen; nothing keeps going up forever. Real estate is cyclical and the way the market behaved in 2021 and 2022 is just not sustainable. The uncertain economy makes predicting real estate outcomes a bit trickier than in the past years, yet I think that 2023 is probably going to be much better than what we all think... and much better than what the media is telling us.
Consumers are adjusting to the new reality which started in 2022. Every time rates go up, buyers take a pause, and then they go back into the market. I am cautiously optimistic about the housing market due to inflation and mortgage rates recently declining and home sales picking up.
What will happen with Home Sales in 2023?
Last year saw the lowest amount of homes sold in nearly a decade. Total sales for 2022, including both existing and new construction were projected to end at around 5.8 million homes. So, what are experts anticipating for home sales in 2023? With interest rates slowly but surely dropping yet still high, current home sale projections for this year are 5.1 million. Lawrence Yun, chief economist for the National Association of Realtors, noted, "This recent low point in home sales activity is likely over. Mortgage rates are the dominant factor driving home sales, and recent declines in rates are clearly helping to stabilize the market." However, there is a silver lining to this projection. Because home sales are mortgage rates are directly linked, there are many factors that lead industry experts to anticipate a rise in homes for sale.
Is the market going to crash?
With the rapid shift that’s happened in real estate in the last 12 months, some people are raising concerns that we are destined for a repeat of the crash we saw in 2008. But in truth, there are many reasons why today’s housing market is nothing like 15 years ago. One of the biggest reasons this isn't like the last time is the number of foreclosures in the market is much lower now. While you may have seen recent stories about the number of foreclosures rising today, In truth, the headlines don’t give you all the information you really need to understand what’s happening and at what scale.
Headlines Focus on Short-Term Equity Numbers
One piece of news circulating focuses on the percentage of homes purchased in 2022 that are currently underwater. The term underwater refers to a scenario where the homeowner owes more on the loan than the house is worth. This was a huge issue when the housing market crashed in 2008, but it's much less significant today.
Media coverage right now is based loosely on one report that states:
"Of all homes purchased with a mortgage in 2022, 8% are now at least marginally underwater and nearly 40% have less than 10% equity stakes in their home, . . ." Source: Black Knight, Inc.
Let's look at the bigger picture. The data-bound report from Black Knight is talking specifically about homes purchased in 2022, but media headlines don’t always mention that timeframe or how unusual of a year 2022 was for the housing market. In 2022, home price appreciation soared, and it reached its max around March-April. Since then, the rate of appreciation has been slowing down.
Homeowners who bought their house at the peak or those who paid more than market value in the months that followed are more likely to fall into the category of being marginally underwater. It’s important to remember, owning a home is a long-term investment, not a short-term play. When headlines focus on the short-term view, they’re not necessarily providing the full context.
Typically speaking, the longer you stay in your home, the more equity you gain as you pay down your loan and as home prices appreciate. With recent market conditions, you may not have gained significant equity right away if you owned the home for just a few months. But it’s also true that many homeowners who recently bought their house are unlikely to be looking to sell quite yet.
Pending Home Sales rise first time in 6 months.
Pending Home Sales rose 2.5% from November to December, ending six straight months of declines. However, sales were 33.8% lower than they were a year earlier. This is a critical report for taking the pulse of the housing market, as it measures signed contracts on existing homes, which represent around 90% of the market. Lawrence Yun, chief economist for the National Association of Realtors, noted, "This recent low point in home sales activity is likely over. Mortgage rates are the dominant factor driving home sales, and recent declines in rates are clearly helping to stabilize the market."
All in all, I, along with the major players in the real estate realm, will be waiting to see how inflation, mortgage interest rates and supply play out as the year progresses.
One thing to keep in mind: real estate markets are micro-focused and you may have much more equity in your home than you imagined.
Call me to learn what your home is worth and how that impacts your real estate goals and future plans.