Hi, this is Greg Raymer with the Real Estate Update. As we look back on 2022 and forward to predict the housing market for 2023, one thing is clear. 2022 was, instead of the tale of 2 cities, it was the tale of 2 housing markets.
January through June was one type of market while July through the end of the year was another type of market altogether.
Through the first half, we saw a continuation of the upward price appreciation that was the hallmark of 2021. Every variable that affects housing prices was putting upward pressure on market prices. There was the demand fueled by millennials reaching their peak home-buying years. There was also probably close to a decade of underbuilding for single-family homes that helped to spark a nationwide housing shortage. These things lead to inventory being close to non-existent.
And, of course, adding fuel to this fire was mortgage rates being at historic lows.
Then there was the Federal Reserve, in their infinite wisdom, jumping in and starting to change things in the spring 2022 by raising the federal funds rate, which pushed up bond yields and mortgage rates.
What happened after that was it actually created kind of a panic as home buyers and sellers started a frenzy of buying and selling before they became a victim of the higher mortgage rates. This frenzy, combined with the usual spring home buying behavior, allowed the good times to continue and for prices to continue going up for a few extra months.
As the summer of ’22 wore on, the effect of rapidly rising mortgage rates took hold. With buyers already facing crazy-high home prices and now looking at higher mortgage rates to boot, this double whammy priced many homebuyers out of the market, and demand fell quickly.
As you know from basic econ class, when demand falls, inventory tends to rise, which is exactly what happened.
The good news is that, as of now, we seem to be in a correction and not a crash anywhere like 2008.
I think what we will see in the first half of ’23 will be more of the same of what we have seen since the fall – even though there is reduced buying and selling going on, generally buyers don’t want to buy due to higher rates and sellers don’t want to sell due to the inflation and pricing uncertainty.
The one thing that affects any market, housing included, is affordability.
If inflation, housing supply and the interest rates moderate, then we should see a modest recovery in the second half of 2023.
Will that happen? We will take a look at that on the next Real Estate Update so take care and we will
see you then.
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