The 2023 real estate market has certainly been an interesting one. While the market is not as strong as 2022, it certainly has remained stronger than most would have expected. Where home prices were expected to fall 10-20%, some are actually up by that more compared to last year. The market has remained strong for several reasons including the fact that the majority of homeowners actually owe less than their property is worth and also have a low interest rate. Because of that, homeowners are in no rush to sell and the properties that do come on the market are still being sold within months and at near asking price.
If you are comparing the market to the last crash, things are completely different this time and the decline in values will have little to do with foreclosures. If the values go down, it’s because consumer demand went down, mainly due to increased interest rates. In fact, home prices appear to be a far less factor in buyers determining whether to buy or not. Instead, the interest rates and available selection are what’s keeping buyers from pulling the trigger.
Current State Of The Real Estate Market
As of now, the real estate market remains strong. There is no expectation for a major bump in foreclosures and most areas do not forecast a major economic dip of any kind. Even with some companies slowing down, the majority of employment fields are still strong and people are able to find work to cover their bills. It’s different for everyone but in its entirety, the real estate market has remained far stronger than most would have expected. There is a small decline in sales and mortgage applications when compared to last year. However, those numbers are heavily influenced by higher interest rates.
By having higher rates, the goal is to slow down the demand for these properties by making the monthly costs too high for buyers. The strategy is working. Because buyers have to fall within a solid income-to-debt ratio, they are not eligible for the purchase of a home because of the inflated interest rates. These higher rates are pushing the monthly costs beyond what the buyers can cover according to the ratio, thinning out the buyer pool and property prices are just now showing a small decline.
What’s Impacting The Market Now
Along with interest rates, the increased cost of living is having an impact on buyers as well. While covering the monthly cost of a mortgage may not be the issue, having a down payment can also create an issue because of the inflated home prices. 10 years ago, you could purchase a house with a down payment of $25,000. Now, the same house would require a down payment of two or three times that amount just to be taken seriously. If you cannot cover that cost, the monthly costs do not matter.
The down payment is also hurting potential buyers in that they will not have the funds to cover upgrades on the property. If someone listed a property at $450,000 last year and the property needed $50,000 in work, the property would still sell at that price. Now, buyers are saying they cannot afford to cover both so prices need to start dropping. This means that older homes and properties that need work are going to struggle to get full value.
Where Is The Market Going
Can you sell your house and realistically get 90% of the value of it? Yes, and that should remain for the rest of the year. However, as interest rates become a tougher thing for buyers to deal with, the buyer pool may be thinned out. Not only that, but home values could go down anywhere from 10-20% if there’s a major decline in qualified buyers. This is what experts are waiting to see but most feel that the market should remain relatively strong for the remainder of the year.
Even better for homeowners right now is that they can afford to take advantage of their property with lower interest rates, saving them hundreds of dollars a month compared to those who have purchased their latest property in the last year. The inflated rates will impact new homeowners more and also give older homeowners more incentive not to sell at this time.
What Realtors Expect In 2024
If there is a dip, the dip is not expected to be anything serious or anything comparable to the 2000’s. However, it’s important for homeowners and buyers to know what to expect and have a game plan, especially if you plan on buying or selling next year. Knowing where the markets are going is important but you also have to be aware of your options. Are you ready to sell? Should you sell? Are you ready to buy? Where can you afford to buy?
Realtors believe that a slower market in 2024 may actually be a good thing. It allows prices to cool a bit without decreasing value and once rates and the economy stabilize, home buying will begin again, still faster than expected, but not as fast as it was two years ago. There are still plenty of ways to take advantage of the current market and that’s where working with experienced realtors can make a world of difference.
Knowing Your Options
You may be in an apartment with enough for a down payment but not sure if you should buy now. You may be an owner of a beautiful home that you’ve had for 10 years. You made renovations, you love the property but it’s also worth three times what you bought it for. You know that you are going to need this money at some point and covering the inflated property taxes, insurance costs and other costs were not part of your expected annual costs. So, what should you do based on these and other situations?
That’s the challenge that we all have in the real estate market. The best advice is to work with an experienced realtor, someone not only familiar with the market, but your area as well. They know how the market responds and how your area responds to the market. If they can give you local advice while also creating a custom strategy for you based on your financial and real estate situation, you are looking at a much better plan for 2024.