May 2023 Market Update

In our February newsletter I predicted the 2023 market would be the “return to normalcy.” Now I must admit that my prediction may have been premature. We were hopeful for a more manageable rate of appreciation and an increase in inventory due to the seasonal spring market. Instead, we are still feeling the same frenzied pace of 2020-2021… and now at higher sales prices and higher interest rates. 

Demand

Despite the higher mortgage rates, we are outperforming the slow-down that was predicted for 2023. Our company anticipated a 15% decrease in the number of sales for the year, but the number of homes sold are only down 10%. Buyer demand remains higher than predicted for marketing conditions. 

Supply

Inventory has declined from roughly 2,700 listings mid January to 2,200 currently. Inventory typically bottoms out in February and then rises steadily through the summer. For example, the 6,500 homes for sale in May 2019 was TRIPLE where we are today. We are not seeing the spring inventory growth that we should. There continues to be a reluctance on the part of owners to sell. New listings taken were down 8% in March of '23 versus March of '22.

Price

What dictates price? Supply and demand. In the February market update I noted the slight market correction we experienced in Q4 of 2022 and predicted that we would see “stabilization at a sustainable growth rate” in 2023. To our surprise, and thanks to the elevated demand and low supply, prices are accelerating again. The average price of closed properties in April was $414,000, about 5% higher than 2022. 

So what are we seeing out there? We are seeing competitive multiple offer situations for both our listings and buyers. In fact, B.V. had one week where all 5 buyers she was working with in various areas and price points were in multiple offers! Luckily her expertise guided all of them to victory (experience matters more now than ever). 

Speaking of interest rates - the Feds hiked the federal interest rate another quarter of a percent this week. Many expect this to be the last interest rate hike before they take a break and let the market settle into that “soft landing.” And what goes up, must come down, right? With the rate of inflation decelerating, rates should gently decline over the course of 2023. A decline in mortgage rates could start to convince those sellers stuck in “wait & see” mode to list their homes. This standoff is created by the mortgage rates, with 82% of sellers nationwide admitting that they feel “locked in” by the mortgage rate they have, which is often several percentage points lower than what they’d get now…and for a more expensive house.

The first half of 2023 has reinforced that the real estate market is purely driven by supply and demand which is currently hinging on mortgage rates. If we see rates begin to decrease and stabilize in the second part of 2023, maybe, just maybe, we will get to that return of normalcy.