Reflecting on the 2023 Real Estate Market: Insights and Trends

The real estate landscape between 2022 and 2023 experienced considerable shifts, presenting both obstacles and prospects for buyers, sellers, and those in the real estate profession. In this analysis, we’ll delve into these evolving trends and provide valuable perspectives that aim to inform and assist those navigating the future of the market.

The Rise of Mortgage Rates and Its Ripple Effects

One of the most significant developments in this period has been the surge in mortgage rates, reaching a two-decade high by 2023. This increase has had a domino effect on various aspects of the housing market.

Mortgage Payments and Homeowner Income

Higher mortgage rates have led many homeowners to struggle with keeping up with their monthly payments. In fact, for some, these payments are now taking up over 30% of their income. This is a significant concern, particularly for those who are trying to buy their first home. With the increase in housing prices and mortgage rates, many potential buyers are finding it challenging to afford a home. This trend is especially worrying as it can have long-term consequences for the financial stability of individuals and families.

Impact on Housing Inventory and Prices

The housing inventory has been on a path of recovery since it hit a historic low in 2021. However, the pace of replenishment remains slow, and we are yet to reach the inventory levels seen before the pandemic. The shortage of housing supply has caused prices to rise continuously, which is a major concern for affordability. As prices go up, it becomes more challenging for many people to achieve their dream of homeownership. This situation is not limited to specific regions but is a nationwide problem that affects diverse markets and demographics.

Sales Trends: Previously Owned Homes vs. New Constructions

The recent trends in the real estate market have shown a significant decrease in the sales of previously owned homes. This downturn is largely due to many homeowners having purchased or refinanced their properties at lower mortgage rates during the pandemic. With current rates being higher, these homeowners are hesitant to re-enter the market, leading to a scarcity of available homes and consequently, an increase in the prices of existing properties. On the other hand, the new construction sector is witnessing a surge in interest and sales. The limited availability of resale homes has shifted buyer focus to new constructions, resulting in a marked rise in their sales year over year. This trend underscores the growing attractiveness of new builds in a market constrained by limited resale options.

Statistical Overview: 2022-2023

• Pending Home Sales: Dropped 8.6% (96,132 in 2022 to 87,827 in 2023).
• Closed Sales: Decreased 13.9% (102,327 in 2022 to 88,078 in 2023).
• Home Inventory Increase: 8.3% rise (18,221 in 2022 to 19,741 in 2023).
• Median Sales Price: Up 2.9% ($315,797 in 2022 to $325,000 in 2023).
• Monthly Supply of Inventory: Increased 17.4% (2.3 months in 2022 to 2.7 months in 2023).

Positive Indicators for Buyers

Despite these challenges, there are encouraging signs for buyers:

• List Price at Sale: The percent of list price received at sale decreased from 99.6% in 2022 to 98.2% in 2023, offering some relief, especially for those at the top of their budget.
• Federal Reserve’s Stance: With the Federal Reserve indicating a likely end to raising interest rates and planning at least three cuts, we anticipate a revival in buyer and seller activity.
• Recent Drop in Mortgage Rates: The recent decrease in mortgage rates is expected to stimulate an uptick in home sales and inventory, providing a more balanced market.

The Future Landscape **2024**

With residential real estate making up 18.5% of our economy, the affordability challenge remains a significant issue. Real estate is a consumer-driven industry with the majority of society holding their wealth in this industry. As a whole the American people have over 40 trillion dollars in Equity (consumer wealth) tied up in real estate. While economists predict that U.S. home sales may continue to lag behind the levels seen from 2019 to 2022, the buying and selling of real estate will remain a necessity for many people. And with interest rates beginning to stabilize around a high 6% or low 7% we can expect to see more people entering the market as buyers. With current projections and the thought of sideline buyers finally feeling comfortable enough to buy, it is important to remember if there is a huge influx of buyers- one we can’t sustain based on our inventory levels- we will enter an unbalanced market. An unbalanced market means the value of houses will go up and you may find yourself caught in a bidding war for the home of your dreams. While there is a mixed consensus on future home prices, we recommend you keep in mind that you are marrying the house but only dating the rate, so don’t let a couple points dissuade you from making a move on your dream home!

Conclusion

The 2022-2023 real estate market has been characterized by rising mortgage rates, slow recovery of housing inventory, and fluctuating sales trends. However, recent developments offer a ray of hope for a more balanced market in the near future. For those involved in real estate, staying informed and adaptable is crucial in this dynamic environment.

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