Throughout the past two years, the real estate market has navigated a series of extremities, from record-low interest rates and skyrocketing housing prices to rising interest rates and an abundance of price reductions. As we enter 2023, we approach a market of balance, not favored to buyers or sellers, but neutral to both.
Data has shown a stable decline in supply and the median price of a single-family home, indicating the market is slowly balancing itself out and normalizing.
As the market steers clear of the extreme situations consumers have adapted to over recent years, confusion has begun to swarm the real estate industry. For those that have never experienced these conditions before, it creates uncertainty and many have posed questions around the market’s future: Is it cooling or crashing?
When rates substantially dropped and demand began exceeding supply, we entered and remained in a sellers market for just over two years. Sellers had the advantage as buyers were faced with high competition, low inventory, all cash offers, waived contingencies and more.
At the beginning of last year, the Federal Reserve implemented rate hikes to combat inflation, shifting the market drastically. What was expected to become a neutralized market transformed into a buyers market. Buyers who entered the market were presented with more inventory and more choices, which eliminated the need to settle as many had in recent years, giving buyers some power back.
Now, we are seeing a balance of these extremes. Regulations and restrictions have been implemented to ensure the market is not as volatile and risky as it was 15 years ago. Homeowner equity is also nearing record highs and the market has not seen a substantial increase in foreclosures.
The market is missing the necessary indicators of a crash and is instead showing signs of correction across four key areas for 2023, including demand, inventory, buyers and sellers.
In the first quarter of 2023, an increase in demand may occur as a result of consumers adapting to rates between the high fifth and low sixth percentile. Since prices have shifted to become significantly more attractive than they were in both quarter one and two of last year, buyers may begin to reenter the market to take advantage of prices we have not seen in years.
Inventory is expected to remain stable over the next few months, as homeowners who would normally enter the market are predicted to stay put to take advantage of their current mortgage rate. Once the seasonal real estate market picks up and demand increases, we are preparing to see a slight decline in inventory.
In November 2022, local association data reported the lowest median price of a single-family home for the year at $430,990.
As this decline in price points is expected to continue, the market may see a substantial increase in sideline buyers, those who held off on entering the market or went into a lease in the last two quarters of last year. The sideline buyers are likely to reenter the market to take advantage of such pricing and seller paid incentives.
In mid-2023, seller incentives such as closing costs and rate buy-downs could start to diminish for more in demand locations and price points.
Sellers looking to spark buyer interest may have to price their homes at a realistic and more attractive number than from the previous market. A property’s pricing is essential to offset the higher mortgage rates and minimize its time spent on the market.
While the market cools and undergoes correction in 2023, it will create a ripple effect that shifts key elements, including a spark in demand, decline in inventory and continued price reductions. As we anticipate this shift, agents must prepare by innovating their strategies and tactics. What has worked in recent years, will no longer be viable, leading consumers to expect more from their Realtor to help them successfully navigate and take advantage of the normalized market.
Craig M. Tann is the founding owner and broker of huntington & ellis, A Real Estate Agency, one of the top-producing real estate brokerages in Las Vegas with more than 100 real estate sales executives across 17 teams.