The word for the year so far is “Uncertainty”. Lance Lambert with Fortune.com said he tracked 27 different real estate research groups and every single one of them is different in their predictions”. Here are the nuts and bolts of what is going on right now!
Interest rates are higher than they were and this has cooled buyers and caused the market to slow from its peak last Spring. Interest rates started out around 3.2% in January of last year and peaked above 7% near the end of last year. They have fallen back a bit to about 6.25% which is good news but most experts are saying buyers wont start jumping back into the market until they fall closer to 5%. With the recent news of the failure of Silicone Valley Bank and a higher inflation number in the most recent report, we don’t see these rates coming down anytime soon and expect the Federal Reserve to continue raising their rates through 2023. Want to see how an increase in interest rate affects your payment? Click here.
On the supply side, inventory is still historically low. Now statistic will show you that inventory is up by 22% but although that may sound like a lot, it is just returning us to pre-pandemic inventory levels which is still low. Currently we are sitting at just under 6,000 homes for sale in the Twin Cities area. In order to have a balanced market (not tipped in the buyers or sellers favor) we need about 20,000 active listings, as you can see we are still well short of that and still tipped in the sellers favor. This shortage is most prevalent in the affordable housing zone ($300,000 or less). Most of the building that is happening now is $450,000 plus.
Photo by Matt Walsh on Unsplash
On the demand side, that is a little harder to pin down. As we stated earlier, interest rates have cooled the market but, we are still seeing properties that are presented well and priced right moving fast and in many cases still in multiple offers. Unlike a year ago we are not seeing 50 offer scenarios with the highest offer going 15%-25% over asking price but we are seeing homes move fast and sellers are receiving close to the asking price. In addition, overall prices are still going up. The 12 month median sale price is up 7.4% with December and January up 5.1% and 2.7% respectively.
What is our prediction you ask? The pessimist side of us says hold on tight, we are in for at least 2 years of a bumpy ride. The combination of increased interest rates and inflation pressures will cause people to sit tight and save until things improve. This will decrease demand and supply at that same time. The optimist side says it may still be a good time to move. Especially if this is a peak in the market. If you are downsizing, now might be the time to make the move especially if you can wait a little bit to buy. Sell high buy low!