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What You Need To Know About The Housing Market Headed Into 2023

First off: if you want to watch Matthew Garder’s Top 10 Predictions for 2023 for the Real Estate Market, Click Here. He is one of the most trusted voices I pay attention to when it comes to real estate. Now for a bit more on our own thoughts'

The housing market has been a wild ride for the past couple years. Following the pandemic we saw the price of homes skyrocket. And for a while, it was a very strong seller’s market. 

But a lot’s changed over the past year. 

Homeowners and buyers alike need to be aware of the new trends now shaping the future. And in this article we’ll review what’s happened, what’s changed, and how you should start thinking about real estate given the significant changes that have occurred over the past year. 

Recapping The Strong Seller’s Market 

The initial waves of COVID-19 created a perfect storm of work-from-home norms, low interest rates, minimal spending, and high personal savings rates. 

The result' 

A flood of demand from willing and able homebuyers. This demand completely outstripped supply however, and global supply chain issues exacerbated the issue by putting kinks in home construction times. 

With these forces at play, it was homeowners that won out, while those sitting on the sidelines were left wanting and waiting. But since May and June of 2022, we’ve seen major down shifts in trends like average median home prices, and the number of homes being sold. These, as well as other trends, have reduced the strength of the homeseller’s market substantially.

Major Changes Over The Past Year

Homesellers can’t rely on the trends of last year’s marketplace (or even those of earlier this year). By looking at the data, it’s easy to see how much things have changed in the past year. And moreover, how much of that change has occurred in a matter of months. 

Home Price Increases Are Slowing: Median home prices are still way up, and growing. But, for Q3 2022, Fannie Mae reported that single-family home prices rose at a non-seasonally adjusted annual rate of 13.8%. This is down from Q2’s 19.1%.1 

  • Seattle home prices have risen 7.7% year-over-year for October, 2022. But they’ve actually decreased ~$50,000 since May 2022.2
  • Fewer Seattle homes are selling above their listing prices too. This figure is down 23% year-over-year for October, 2022. And it’s fallen over 40% since April alone.2 

Home Inventory Is Increasing: Housing inventory is still low. But there are signs that this trend may be shifting in direction. Active listings were 27% higher in September, 2022 than they were the previous year. However, this is still 40% lower than September 2019, before COVID hit.3

  • Seattle home sales dropped 42.9% year-over-year in October, 2022. And it should be noted that a nearly identical drop occurred between just May and October of this year.2  

Average Time On Market Is Longer: Homes are still selling quickly. But again, there’s been signs of a trend shift. The average home spent 51 days on the market in October, 2022. This is almost a week (6 days) longer than last year.4

  • Seattle has followed a similar trend. Year-over-year data shows that average days on market increased by 6 days to 13 days for October, 2022. But it should be noted that not that long ago (between February and June), homes were selling on average in under a week! The timeline has basically doubled in just a few months.2 

Changing Market Attitudes: Buyer and seller attitudes have changed over the past year. Fannie Mae’s Home Purchase Sentiment Index showed that in September, 2022, 29% fewer Americans think now is a good time to sell compared to last year. And 16% less believe home prices will rise over the upcoming year.4 

Inflation Is Higher: Inflation has also continued to rock the American economy. And over the past year, we’ve seen it hit harder. Current inflation sits at 7.7%, which is 0.7% higher than 2021’s peak rate of 7% in December. So far in 2022, inflation has maintained a floor of 7.5% and even broke through the 9% ceiling in June.5 

What’s Driving The Changes?

Layoffs Are Happening: Unfortunately, mass layoffs have also been a trend in 2022 as well. Major companies such Amazon, Meta, Coinbase, Salesforce, Twitter, and many more are cutting thousands of jobs.6

There’s Economic Uncertainty: With high inflation, Fed interest rate hikes, and talks of recession most people; buyers, sellers, renters' literally everyone we talk to, are feeling spooked. This pause in a willingness to take action has frozen the real estate market quite a bit.  

Rising Mortgage Rates: Mortgage interest rates have continually risen over the past year. Presently, 15- and 30-year fixed mortgage rates sit at a whopping 6% and 6.78% respectively. And just recently, 30-year fixed mortgage rates broke a staggering 7%.7 This trend has certainly not served as an enticement to buyers. And many have simply been priced out of the market. 

Rising HELOC Rates (Home Equity Line of Credit): Over the past year average HELOC rates have also climbed. On November 21, 2022, the average rate on a 10-year HELOC (5.82%) and 20-Year HELOC (7.82%) rose 3.27% and 2.68% respectively over the course of a year.8 

Mortgage Payments Are Going Up: Monthly mortgage payments rise as interest rates do. The higher your mortgage interest rate, the more you’re paying each month. And given the duration of mortgage payments, this can amount to a lot more paid over the years. Again, another turnoff for buyers. 

Here’s an example:

  • November, 2021: Sarah bought a home worth $600,000, and made a 20% down payment. Her interest rate on a 30-year fixed mortgage was 3.2%. So her principal and interest monthly payment would be $2,076.
  • November, 2022: Chantele also bought a $600,000 home, and made a 20% down payment. She too got a 30-year fixed mortgage, but her interest rate is 7.07%. This causes her principal and interest monthly payment to come out to $3,216.

Will There Be A Housing Market Crash?

The true answer to this question is no one knows for sure. 

That’s reassuring!

It’s actually a good thing. Staying calm is easier once you realize someone’s always calling for doomsday. Instead, you need to brush up on present facts, market history, and industry-leading insights for a better understanding. Or as Matthew Gardner (again big fans!) says, “there is no housing bubble.”

A Great Recession 2.0?

If you’re still worried about another Great Recession, we get it. Financial Crisis PTSD is real, and we don’t want you to feel guilty over worrying about another crash. 

That’s normal!

But the conditions that lead to the recent blow up in home prices aren’t the same as the ones that underlined the Great Recession. Additionally, other changes in consumer perspectives make this market a very different scenario. 

Major differences exist between the housing situation now and the one in 08′. These include, but aren’t limited to greater financial safeguards, greater potential recession fears, and far less affordability for homebuyers in the marketplace. 

What Are Industry Leaders Saying?

Fannie Mae’s Chief Economist, Doug Duncan, recently stated, “… homeowners likely feel “locked-in” to their existing, lower interest-rate mortgages. This contributes to fewer homes being listed, as well as fewer potential buyers, and may lead to a growing share of listings having to cut prices to meet the reduced demand.”1

Duncan went on to say that, “… the supply of completed, new single-family homes for sale has begun to rise, suggesting that homebuilders may also need to begin offering greater price concessions to move inventory. We expect these trends to continue in the coming months.”1

Similar sentiments were expressed by experts at Freddie Mac. According to their forecast, it’s being predicted that home sales will slow, and largely stagnate at a lower level. And home prices will continue to grow at a slower rate going into 2023.9

What Should I Know As A Homebuyer?

The time to act fast is gone. You don’t have to beat out hundreds of offers, buy without inspecting, book a contractor without other bids, etc. But only those with a lot of cash can make major moves right now. So those who planned to finance all the costs may need to review their plan again (which you can contact me for help with!). 

Nevertheless, there are always sound home buying principles to follow:

Know Your Numbers: What home can you afford' Please note, there’s a difference between what you can afford and what you qualify for – especially with the past year’s changes! You need to consult your budget (we can help you make one), and know your numbers (i.e. down payment, monthly costs, etc.).

Get Pre-Approved: By getting preapproved for a mortgage loan, you show sellers you’re able to back up your offer. This can make you a lot more competitive as a bidder, even if you’re fighting against fewer buyers.

Consider Your Mortgage Terms: The shorter your mortgage term, the higher your monthly payments. But you’ll also have a lower interest rate, and a more-quickly paid-off home. So it’s critical to think about what interest payments will cost you in the long-term. And whether or not, you’re open to an interest rate that isn’t fixed. 

Work With The Right People: It’s worth working with a realtor and mortgage broker that knows their stuff! And you’ll want to run your numbers by an advisor you trust. Depending on your situation, we may be able to help you with both over one phone call. 

What Should I Know As A Homeseller?

If you’re looking to sell your home, great! Don’t let fears of economic uncertainty rush you into making a decision. That said, the seller’s market is not as strong now. And you’ll need to adjust your expectations and actions accordingly. Mainly, we see that rushing your home sale without thorough analysis could be a big mistake. Look at all the angles first. 

How to approach today’s market as a seller:

Be More Flexible: It can be difficult letting go of expectations. But we’re no longer seeing the home prices of mid-2022. Open yourself up to a range of offers more suited to today’s market, but keep a firm minimum in mind. 

Brace For Fewer Offers: Homes are still selling with ease. But be aware of a potential smaller pool of buyers that’ll compete on price. Though thankfully, all you need is one!

Understand Your Time Frame: How soon do you need to sell your home' Because it’s always best to be prepared for a potential downturn. But trust the process, and get what you can. 

Know Your “Dealmakers”: Know the range of offers you’d love to sell at. That way, you can close with confidence, and not risk losing out due to indecisiveness. 

Stay On Top Of Market Changes With Crafted Finance

At Crafted Finance, we specialize in working through real estate related problems with our clients. And our professional network includes many real estate agents that can help you find the best deals. 

Home inventory, time on market, and mortgage interest rates have all increased over the past year. And wherever you stand in the market, there are slew of new trends you’ll need to adjust to if you’re looking to stay real estate savvy in 2023. 

Whether you’re buying, selling, refinancing, or remodeling a home, we’ll be able to serve as your go-to financial partner. Call us at (650) 336-0598, or schedule a complimentary consultation at a time that works best for you.

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