Many sellers hold mortgages with interest rates between 2 percent and 4 percent. This, and the prospect of a new loan with a much higher rate made them reluctant to list.
Last year was another historic one in a succession of historic years for the real estate industry. In early 2020 the world was rocked by the breakout of COVID-19, followed by a frenzied housing market in the second half of 2020 and then 2021 with inventory lower than it ever has been in recorded history. 2022 was the tipping point when the market began its journey back to baseline.
Market adjustments, global pandemics, and anemic inventory are not for the faint of heart. To have skin in the game of real estate over the past three years has required dedication and resilience and so we are well prepared for what’s to come as we adjust back into a more balanced market.
Annual sales for the state of Massachusetts were down for the year. This is not a sign that the market is crashing in the typical terms that it is understood. Many twists and turns over the past few years have been easily spun as harbingers of doom for the market – headline-grabbing clickbait. Yes, sales are down over 16 percent, but of course they are. If you look at the rapid and unsustainable rise in sales in 2021, it’s no wonder that 2022’s sales were down over the year before. And thank goodness that happened. This state doesn’t have the inventory available to maintain that level of demand.
Sales were down every month last year over 2021. In the first three months of the 2022, sales were similar to 2020 before the start of the pandemic, though it was still a slow winter with all things considered. Spring came and from April to June sales were again, lower than 2021 but much higher than 2020, making up a bit for lost time. Then mortgage interest rates started to rise and sales fell compared to 2021 and 2020 as buyer affordability diminished with each basis point increase in rates.
Why Sales Fell and Prices Rose
Rates don’t just impact buyers – they impact sellers, too, as most sellers are buyers! If you think the rates are too high for you to afford as a buyer, you’re certainly going to hesitate to list your home which likely has a mortgage with an interest rate of 2 percent to 4 percent. This is going to be the story for a while until buyers and sellers realize that rates in the 5 percent range, give or take a point or so, are actually very normal rates!
What did this mean for sales? By the end of the year, single-family sales had fallen to 52,236 compared to 62,011 in 2021, condominium sales to 23,181 compared to 28,383 and sales of two- and three-families sales dropped to 8,030 over 9,807. Overall, there were 83,477 total sales in 2022, 16.7 percent lower than 2021.
It also meant that sellers were still able to sell at a premium because inventory was low enough that despite the rise in rates, buyers paid what they had to. The average sale prices for single-families increased by 7.93 percent to $683,819. Condos increased by 12.5 percent to $485,552 and prices of two- and three-family properties increased by 6 percent to $657,332.
Additional inventory in the market is a good thing that has been necessary for well over a year. As inventory rises, the supply and demand tug of war will be a little more balanced and it’ll likely cause prices to decline to more affordable levels in the next year. Falling prices shouldn’t scare people. Real estate is a long game and market adjustments do not last forever.
2023 and Beyond
Last year I said, “the entirety of 2022 is going to be a wild ride.” This year, I think the market is going parallel the 1982 market adjustment. Inflation will run up interest rates, inventory will remain low and sales will be down. Nonetheless, real estate is an industry in which regardless of the conditions, the show must go on. Everyone needs somewhere to sleep.
Anthony Lamacchia
For buyers who have been dying for price increases to level out a bit, take advantage of this time; don’t take it as a sign that the market is crashing and use it as another reason to wait. Lowered average sale prices are exactly what everyone has been praying for: more affordability and a way to combat the increased cost of borrowing. Homes taking more than 24 hours to sell is a good thing as well, not a sign that the house has something inherently wrong with it. Buyers finally have a little leverage and negotiating power again.
Sellers who are on the fence about selling should know that selling a home with a mortgage of 2 percent to 4 percent might sting but getting a new one at a rate of 5 percent is not the end of the world, and there are ways to get a lower rate a least at first through a mortgage rate buydown program or a mortgage assumption.
Rates are likely never going to drop back into the 2’s or 3’s. The need to relocate, increase the number of beds with family growth, find an option with an in-law unit or downsize are a few of the potential reasons moving has to happen for people despite the market, and there are ways agents can get these deals done successfully.
This column was adapted from a post that originally appeared on anthonyspredictions.com.
Anthony Lamacchia is CEO and broker of Lamacchia Realty.
