In the interest of starting the new year on a high note, let’s dispense with the misanthropy right away– interest rates are too high, there aren’t enough houses for sale, they’re all too expensive, and we’re sick of Agreeable Gray paint. Done! Moving on!
The word to describe the 2023 housing market is blip, not correction. Yes, interest rates remained significantly higher than they were during the manic rush for government cheese we saw in 2020 and 2021. Yes, inventory was down, and yes, home prices stayed pretty sticky, despite the amount of buyers who have been sitting on the sidelines. Let’s get to some perspective though.
The median sale price in our area for resale homes was $589,000 for the year. That’s down 1.8% from 2022 (which clocked in at an even $600,000), and well above the numbers for 2021 ($550,000) and 2020 ($467,500). Combined with higher interest rates it is indeed a tough pill to swallow for new home buyers, and many who could qualify for a loan a couple years ago simply can’t now. But what does it say about the strength of the market that interest rates can double while prices remain virtually the same? Or that home values have risen 26% in three years? I try to avoid cringe-worthy sayings, but one of them seems pretty true: time in the market is better than timing the market.
As for inventory, 2023 was the year that a bunch of potential home sellers, when faced with the potential of doubling their interest rate in order to move somewhere else, said no thanks.
Here’s a reminder that the main drivers of home sales are upsizing, downsizing, relocation, death, and divorce. Those last three are constants in any market– they won’t change much from year-to-year. The first two are the variables. Those can change based on market conditions, and that’s a big part of the difference between 2023 and prior years. New listings of resale homes dropped 19% from 2022 to 2023. If interest rates continue to improve (I SAID IF) more of those upsize/downsize sellers will come back to the market, as the gap between their old rate and the new one will shrink to something they can live with.
One bright spot on the inventory front is new construction, which increased the amount of homes they listed for sale by 11% in 2023. New construction represented about one out of every eight homes sold last year in our area. With more expansion of the Urban Growth Boundary, expect this part of the market to remain robust.
Finally, we get to the meat of the matter– how many homes are being sold.
Fewer homes being listed means fewer homes being sold, because obviously. Here’s another way of looking at it though:
This one is easy math– sales divided by new listings, per year. It’s one way to approximately measure how much inventory is actually moving each year. In 2023 that metric is 70%, which is of course not on par with the flying-off-the-shelves years of 2020 and 2021. However, it is on par with 2018 and 2019. If we’re looking for aberrations in the market, look to 2020 and 2021.
Looking ahead into 2024, it’s going to yet again be a market that is shaped by what the Fed does with their interest rates. In December, they signaled that there would be three cut to their key rate, likely starting in March. The bond market, however, is pricing in six or seven rate cuts– basically, most investors believe that the Fed will be more aggressive with cuts than they’re indicating. If the market is correct, there will be continued improvement to mortgage rates (which have already dropped considerably in the last several months, due to this speculation). If the market is wrong, expect the opposite. If any of you have a crystal ball, please reach out.
