Existing home sales were down 34% year over year, marking the eleventh straight month of declines according to the National Association of Realtors.
· The median sales price rose 2.3% to $366,900 on a year-over-year basis.
The National Association of Realtors recently shared a significant home sales decline in December 2022, by 34% year over year and a decline of 1.5% month over month. – the 11th consecutive month of declines. This reflects a downward trend in home sales that have taken place for almost a year, suggesting an unfavorable housing market climate. Moreover, such a downward trend has the potential to decrease the value of real estate prices. It is important to pay attention to home sale trends to make well-informed decisions when it comes to buying or selling a house.
Why Are Homes Sales Falling So Fast?
The mortgage rate increases of 2022 were unprecedented, with rates having doubled over the course of the calendar year. This all-time high increase in mortgage rates is the number one cause of the decline in home sales that we have seen across the country. High mortgage rates inflate mortgage payments and can put a strain on potential buyers’ pockets. In January of 2022 mortgage rates were reported to hover around 3%, but by December they had risen to an alarming 6.5%. This drastic in mortgage rates is faster than ever before, leading to a decrease in people being able to afford their dream homes.
Why Are Interest Rates Rising So Fast?
The federal funds rate is an instrumental tool in the Federal Reserve’s attempt to combat the inflationary pressures on the US economy, specifically now when inflation rates are at their highest in 40 years. In 2022 alone, the Federal Reserve hiked up the federal funds rate seven times, starting at a low of .25% and closing out the year with a federal funds rate of 4.5%. This is a major shift and leads to a higher cost of borrowing money for houses, cars, and everything we buy, putting a damper on consumer spending. But how high does the federal reserve rate need to go to gain control over inflation? While experts may have predictions, it’s ultimately impossible to know for sure.
In recent years, the Federal government has overseen the unprecedented growth of the M1 and M2 money supplies by increasing the number of dollars available. Looking at graphs of M1 and M2 money supplies reveals a sharp acceleration in growth in both funds. With more dollars chasing goods and services, prices naturally will rise as suppliers leverage higher demand to increase costs. This concept is simple and also known as ‘supply & demand 101’.
Will There Be a Housing Crash in 2023?
We do not believe there will be a crash in home prices in 2023, however, we do believe home prices will decline in 2023 says John Myers owner/broker of Myers & Myers Real Estate.
Housing prices are beginning to fall in many of the large cities across the United States. While there is a range of predictions from experts about what will happen next. One thing is for certain: the housing market centers around local markets and no two housing markets are the same. As a result, buyers and sellers should track local housing prices and keep an eye on the economy as time progresses to gauge how they might affect their housing plans. Although it is fully possible that housing prices could crash in some areas, others may follow different trends altogether – so tune into your local housing market to stay informed.
What Should Home Buyers Do?
As home buyers weigh the decision to purchase, they need to consider all the factors that go into home buying, especially the current and expected mortgage rates. Most experts predict the Federal Reserve will increase its fed funds rate over the 2023 year, which should result in a rise in mortgage rates. However, some experts are proposing different opinions; they feel that mortgage rates could reduce by the end of 2023. Despite these contrasting predictions, I fall in the camp that mortgage rates will be higher after this year than when we started it. Buyers will have much to ponder as home prices possibly decline due to pandemic-driven economic challenges and increased competition for homes with low borrowing costs. Each home buyer should monitor their local real estate market and reflect on their goals carefully before making a home-buying decision so they can be sure their purchase aligns with what is best for them.
What Should Home Sellers Do?
Home sellers fall into two categories – homeowners that must sell and those who want to sell. For home sellers that must sell, we highly recommend selling sooner rather than later given the fact that rising mortgage rates are making it harder for buyers to afford a home and home prices are currently falling in major cities; although we do not expect an outright crash. Homeowners who want to sell should know that markets have changed and offers will likely not come flooding in as quickly as they may hope. They should adjust their expectations accordingly and understand that patience is required when marketing themselves properly in these unique markets.
After a few years of an ultra-competitive housing market, the market is shifting and a more balanced market is emerging. Buyers, sellers, real estate agents, real estate investors, and other professionals within the real estate industry are adapting to this change which results from pandemic-related circumstances being largely over, essentially returning the real estate market to pre-pandemic norms. Buyers will note that properties are staying on the market longer as competition eases up somewhat, though it is still an active housing market. It will be interesting to monitor how this shift continues in the coming months and years.