After a few years of a WILD RIDE, things are finally starting to stabilize here at the beach. A normal market (no real swing in value up or down) is defined by an inventory of 4 to 6 months. We are currently just under a 5-month inventory, putting us smack in the middle of that range. With this as our starting point, where might we be headed?
Pricing – Currently, pricing still feels on the high end. The 15 buyer deep multiple offer scenarios are long gone, but we haven’t quite seen a sharp change in pricing just yet. However, would you be surprised to know that even in the thickest part of the frenzy, still, 50% of all properties sold were for LESS than the asking price? Below is a comparison of what the market did in January of 2022, fast forward to November, and then the average for the entire year of 2022.
2022 Closings Jan % Nov % YTD%
Full Price 23.86% 22.05% 23.90%
Over List Price 21.05% 15.90% 25.54%
Under List Price 55.09% 62.05% 50.55%
PREDICTION #1 – 2023 by year’s end we will move to 80% of homes will sell for less than list price.
Activity – As I mentioned in the email, we are already seeing a 52% drop in the number of properties under contract as well as 50% drop in the number of sold from this same time last year. Under contract percentage of inventory hit a peak of 48% and is now down to 26%. So activity has SHARPLY moved downward. An inventory bump of only 10% would push us over a 6 month supply and that is when we will likely see a major effect in pricing.
PREDICTION #2 – By June/July, the inventory will peak to a 7 or 8 month supply and pricing will start to be greatly affected.
Rentals – With the airline industry crippled in personnel shortages, among other things, including cost, our rental season will continue to be very strong this year. People will prefer driving destinations over flights. Our own rental numbers continue to show a steady growth patter for 2023.
PREDICTION #3 – If you do desire to buy or sell, rental income will remain a good investment strategy.
Interest Rates – We are seeing rates right around 7% for conforming, unless you choose the ARM option for either 7 or 10 years depending on the lender. Banks right now are showing more favorable terms because they are able to designate more money to shelf these loans long term. We know the FED wants to slow the interest rate increases, but with the recent $1.7 Trillion bill passed, it’s unclear how they will do that.
PREDICTION#4 – It looks like rates will hover in the 6.5% to 7.5% range. If you want to take a chance on an ARM, that can get you lower.
Buyers – It’s no secret that the market is mid-cycle. All the economic factors are present. So if you want to sell your home in 2023, before things cycle back down, it’s important to understand the current buyer mindset. Fewer buyers are in the marketplace, and as inventory goes up, it will start to push prices down. However, I still believe real estate to be one of the best investments to make in an uncertain economy. Why? The value of the dollar is ever decreasing. Real Estate is a tangible asset. It has value beyond the “sales price”. It can generate passive income, be used personally, create some tax benefits, etc. I’m not worried about being able to find a buyer for your home. What I do know is that financial experts will advise buyers to pay less in anticipation of a pricing adjustment. This only means you have to truly strategize all aspects of the sale, not just price.
PREDICTION#5 – Condition, price, seller concessions for buying down points, lower due diligence offerings, staging the home, will become even more valuable negotiation points than we have seen in the last 2 years.
I’m personally excited for the market in 2023. This is when truly skilled agents get to shine! Negotiation skills and strategy will be more important, and so will having a professional on your side. If you have any questions about buying or selling, reach out!
