The 2022 housing market has been defined by two key things: inflation and rapidly rising mortgage rates. In many ways, it’s put the market into a reset position.
Last January I talked about how we needed to watch the inventory of homes for sale and interest rates. As the Federal Reserve made moves this year to try to lower inflation, mortgage rates more than doubled. At the same time, we saw huge jumps in the number of homes for sale. This was a double whammy for the real estate market and had a cascading impact on buyer activity and ultimately home prices.
What’s Ahead For Mortgage Rates In 2023?
Interest rates shot up to over 7% and as of the end of 2022 have settled back closer to 6%. Moving forward, experts agree it’s still going to be all about inflation. If inflation is high, mortgage rates will be as well. But if inflation continues to fall, mortgage rates will likely respond. While there may be early signs inflation is easing as we round out this year, we’re not out of the woods just yet. Keep in mind, at this time last year, nobody was predicting rates would reach even 5%.
When I first got into the real estate business back in 1995 interest rates were 8.5% so I completely understand when many sellers emphasize 6% is still a historically good rate. Of course, when rates were 8.5% I was in San Antonio and we were dealing with $100,000 homes. Saying 6-7% interest rates are historically good is a little like my dad telling me he walked uphill both ways to school in a blizzard when he was a kid.
We didn’t quite hit 25,000 but it did seem like at the beginning of the year everyone was getting their real estate license. As sales slow down, many agents will be leaving the business so that number will start to come down.
What About The Inventory Of Homes For Sale?
Something that really helped my clients last year is I subscribe to a service that tracks all the “Leading Indicators” of the real estate market.
If you would like to receive a weekly email with all the leading indicators send me your email and zip code and it will show up in your inbox on a weekly basis.
One of the most important leading indicators is the number of active listings. As we head into January it will be interesting to see how many new listings come on the market. Many are predicting a “Sellers Strike” where home sellers with a locked in low interest rate will refuse to move. In our area I expect to see more activity for several reasons:
- Investors wanting to sell – My phone is ringing off the hook from investors wanting to unload rental properties. With there being no expectation of significant appreciation this year combined with high property tax bills many are deciding it is time to sell. If that sounds like you, please get in touch with us ASAP. Some strategies we gave our investor clients at the beginning of last year helped them get their homes on the market earlier in the year preserving their equity.
- The “Apple Effect” won’t be what we expected – For 3 years the most frequent question I have been asked is “When is the Apple campus opening?” Many potential sellers have been holding out until that happens. At the December Williamson County Update by the Austin Business Journal it was announced the Apple campus, in the short term, won’t be what we have been expecting due to work from home and concerns about the economy. We have all been expecting, myself included, we would see thousands of Apple employees parachuting into our neighborhoods with suitcases full of money. I believe many of the sellers who have been holding out will realize they can’t hold off moving any longer.
- Higher property taxes for homestead owners – Property tax values skyrocketed last year but most properties with a Homestead Exemption saw only modest increases in the property tax bill. Many properties have an assessed value significantly lower than the market value. That will start to change as most properties in the area will see a 10% increase in assessed value this year despite market values decreasing. Many homeowners will actually see 10% increases for several years to come as their assessed value is significantly below market value.
- Divorce and higher interest rates – The past few years of very low-interest rates have been a tremendous benefit to divorcing homeowners as it made it easier for one spouse to refinance the home loan and keep the property. With higher interest rates that option is available to fewer homeowners and more have to sell.
- Rebound sellers – There have been so many listings that were taken off the market. Some were rented and some are being held off the market because sellers think the market will be better in the spring. Most of those homes will be back on the market next year. Combined with all the other sellers who plan to sell that will cause a larger inventory of homes for sale than experts are projecting.
- Higher rates making it harder to relocate and not sell – Much like with the divorce situation lower interest rates have made it easier to qualify for a mortgage on a new property and keep a current home as a rental. That’s much easier to do when the interest rate on the new property is 3% and you have a Homestead Exemption on your current home. With higher rates requiring larger down payments to keep it affordable and the reality of what your property taxes will be without a Homestead Exemption makes that more of a gamble. I expect we will see move-up and relocation buyers needing to sell.
Will We See An Increase In Panic Sellers?
Some in the media and even some local real estate agents are trying to scare people into believing we are about to see a crash like 2008.
There are many differences between the real estate market today compared to 2008. Although there is no doubt we will see an increase in foreclosures we won’t see panic selling on a large scale.
After the financial crisis, changes were made to mortgage qualifying combined with the amount of equity average homeowners have today. Because of that buyers who are expecting a crash will be disappointed. However, some homeowners will experience a crisis and that is always a tragedy. If you know someone going through a tough time have them contact me for a confidential conversation to talk about what options they have before it’s too late.
If you're planning to sell in 2023, now is the best time to attend our Free Home Selling Workshops. If you want to attend a workshop, get in touch with us and we will notify you when they are scheduled. As always you can check KopaWorkshop.com to see dates and times of our in-person and online Free Home Selling Workshops. For years home sellers have told me they benefited from attending our events. Sign up at KopaSeminar.com.
The information on this page may have changed since we first published it. We give great real estate advice, but this page (and the rest of our site) is for informational use only and is no substitute for actual real estate, legal and financial advice. If you’d like to establish a Broker-client relationship, reach out to us and we’ll tell you how we can make it official. Sending us an email or reading this page alone doesn’t mean we represent you.
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