2022 was a tale of two halves. January through May/June was one type of market, and July through December was a very different market. Below was report released by Biggerpockets this month and I had to concur with their outlook. They been doing really good job analyzing all different data points and helping investors.
Through the first half of 2022, we saw a continuation of the wild appreciation that defined 2021. Every major variable that influences housing prices was putting upward pressure on the market. Inventory was almost non-existent. And, of course, mortgage rates were historically low.
But then, things changed. In March of 2022, the Federal Reserve started raising the federal funds rate, pushing up bond yields and mortgage rates. The change of policy actually spiked demand as homebuyers and sellers rushed to transact before the full impact of higher mortgage rates were felt. This, combined with normal seasonality, allowed the party to continue and for prices to continue going up for a few extra months.
Eventually, the impact of skyrocketing mortgage rates took hold. Already facing ultra-high home prices, higher mortgage rates priced many homebuyers out of the market, and demand fell. When demand falls, inventory tends to rise, which is exactly what happened.
Some of the decline since June is seasonal, but as of December 2022, prices are down almost 10% off their May peak, and a typical seasonal decline is 5%-7%. The descent from the summer peak was deeper in 2022.
It’s worth noting that although prices are declining, they are not in free fall. Prices remain up year-over-year, and inventory has started to moderate. Mortgage rates have come down from October to December, and there are signs that the drop-off is becoming less steep. At this point, we remain in a correction, but not a crash.
2023 Outlook
Will we see a continuation of the downward trend we’re in now? Will things get worse? Or could the market reverse?
Again it can be tale of two halves. First half of 2023, we’ll see a continuation of the market we’re in now: sellers don’t want to sell, and buyers don’t want to buy. Of course, deals are still underway, but I expect sales volume to remain well below what we’ve seen for the last 7-10 years. Even though inflation is moderating, there remains too much uncertainty in the economy for the market to stabilize fully.
Hopefully, during the first half of 2023, we will see inflation come down and get more clarity about what is happening with the global economy. But what really matters for housing volume and home prices is about one thing: affordability. If housing stays as unaffordable as it is now, sales volume and appreciation will stay low. If affordability recovers, you can expect the housing market to stabilize and perhaps even see a modest recovery in the second half of 2023.
So if you are buyer, you could wait out of bit unless you have killer deal waiting for you. If you are seller, I would say go ahead start work towards putting the property in market during summer which could be decent time even with expected fluctuation in the market.
Let’s hope for the best and another decent year!!
