To better understand our real estate market today, it is worth taking a quick look back at the last couple of years. After an unprecedented decline in mortgage interest rates, coupled with an ever-growing remote work environment that led to tens of thousands of Americans relocating in the past two years, we experienced a nearly 25% appreciation in the market two years ago, followed by an almost 10% appreciation last year.
A shrinking inventory almost led to multiple offers and buyers willing to pay well above the asking price and waive appraisals, inspections, and other contingencies.
In the spring of 2022, after the Fed raised rates (the first of several rate hikes), we saw a dramatic increase in mortgage interest rates, from roughly 3% to almost 6%. Predictably, this increase led to a slowdown in the market. The clearest sign of this slowdown was evident during the latter part of Q3 into Q4, when the median price of a single-family home declined from an all-time high of $482,000 to roughly $440,000 and almost five months of inventory.
As we roll into 2023, what does the market look like moving forward? For starters, there are predictions of a softening of interest rates. The chief economist for the National Association of Realtors, Lawrence Yun, recently predicted a decline in mortgage interest rates to around 5.7% later this year, helping make housing payments more affordable. While 2-3% mortgage interest rates were unprecedented historically, so were the median home prices- from three hundred thousand to almost five hundred thousand in a matter of months (I purchased my first home in the late 1990s with an interest rate above 6%, but the home price at that time for a brand new single story home was only $117,000!).
While still technically a seller’s market, buyers shopping for a home now may have more opportunities to negotiate with sellers on price and terms. Sellers need to ensure that their home is ready to sell (pay attention to details!) and have some flexibility in their price.
Another factor sure to affect buyer demand in the housing market is that rent prices nearly matched the appreciation experience in the resale market. As a result, many renters may revisit home buying if rates decline.
It is also worth noting that the U.S. housing market continues to be sought after by international investors, especially pension funds looking for a safe long-term investment product.
This new demand will help home prices increase again as we head into the third quarter of 2023. Realtor.com projects a 5.4% overall home price appreciation. Three to five percent appreciation is considered a healthy housing market.
So what does this mean for you as a buyer or seller? Like almost any other market, timing is everything. For buyers waiting for rates to drop back down to the two and three percent range, they may find that moment will never come. In the meantime, as demand picks back up, they may find themselves in a bidding war once they finally decide to get back into the market if they wait too long. Conversely, sellers who wait to sell to try to time the top of the market may experience a seasonal slowdown when their home does hit the market. The adage “there is always someone looking to buy or sell a home” still holds.
As a Certified Residential Specialist and an Accredited Buyer Representative, I am always happy to provide a no-cost and no-obligation consultation to anyone considering buying or selling. I take the time to listen to my clients and give them the information they need to guide them through one of their greatest financial decisions.
Paul Rich, License B.145142, is a Broker-Owner of Achieve Real Estate and Management LLC in Henderson, Nevada. Paul is an active member of the Las Vegas Realtors and currently serves on the Board of Directors.