Pauline Bennett
In the second half of 2022, the Federal Reserve acted to normalize the economy and the housing market by increasing interest rates. While home buyers recoiled from higher borrowing costs at first, they are beginning to accept this new normal, adjusting their expectations as they return to the housing market in 2023.
Spring 2020 through spring 2022 was an unprecedented time in real estate. It was a white-hot seller’s market. An influx of buyers emerged, propelled by the advantage of historically low interest rates. There was also a powerful motivation to accelerate homeownership goals following the early days of COVID-19.
However, we experienced a significant slowdown in sales during the third and fourth quarters of 2022, attributed to the Federal Reserve’s increase in interest rates. The Federal Reserve has gone to significant lengths to address the rapid acceleration in inflation, especially in a place like New England. This understandably caused some buyers consternation over whether they waited on the fence too long or could now afford less house than they had imagined only months before.
Today, that shock over higher mortgage rates – which are still much lower than levels reached in recent decades – has begun to wear off. Sales were strong during the first two months of 2023. Our agents are reporting busy open houses and motivated buyers. First-time buyers have returned to the market with a vengeance. It feels like prospective homeowners have come to terms with the current mortgage rate environment. Just like we furrowed our brows at the higher price of eggs, for example, we’ve accepted this reality and have continued on making omelets.
Pricing Key This Spring
Post-lockdown, demand boiled over. Buyers were choosing to forego contingencies. In order to be competitive, they accepted a higher level of risk. Lines at open houses stretched around the block and there were tens of offers on many properties. In 2023, the pendulum has swung back closer to the middle. Contingencies are back. Sellers shouldn’t be offended if a buyer wants to have a home inspection. They should be prepared for a more traditional buyer and a more traditional contract.
Pricing is key. For sellers, a skilled real estate agents will examine comparable sales and market activity, and help you pinpoint a price that maximizes the investment you’ve put into your home. We’re still seeing multiple offers, mostly financed as opposed to cash deals. Sellers who are value-priced with move-in ready conditions will likely continue to have the advantage in 2023.
For buyers and sellers, a trusted real estate agent remains an invaluable resource. A skilled agent will understand all types of financing available and provide creative ways to navigate through the rising interest rate environment. According to the National Association of Realtors’ 2022 Profile of Home Buyers and Sellers, nearly 9 in 10 buyers and sellers (86 percent each) purchased or sold a home using a real estate agent or broker. Approximately 90 percent of those buyers and sellers were very satisfied with the experience and said they would recommend their agent to others.
In every price segment, the financial value of a home will hinge on price and condition. No one wants to overpay, and the fear of missing out is a storm that has mostly subsided. Overall, Americans continue to view homeownership as a strong investment. Coldwell Banker’s 2022 Trends Report examined the luxury real estate sector and found that 80 percent of U.S.-based high-net-worth consumers agree that real estate is a safe investment. Over one-third agree that it is the safest investment one can make when compared to stocks, bonds, cryptocurrency and pensions. It is possible that these sentiments will positively impact the luxury sector throughout 2023.
Demand Too Strong
In 2023, I would not expect to see depreciation in home prices. Rather than double-digit increases, it seems likely that price growth will be more modest. Demand is just too strong. The average sale price of a single-family home in Massachusetts was $721,328 in 2022, a 24.87 percent increase over 2020 and an 8.8 percent increase over 2021, according to MLS PIN.
Housing inventory remains low, although it has increased in many areas of Massachusetts. Comparing the fourth quarter of 2022 year-over-year, housing inventory was 15.9 percent higher in Middlesex, our most populous county, per MLS PIN. A six-month supply of available houses is considered normal; we’ve seen that level drop to two weeks, but it has increased to three to four weeks in some areas of Massachusetts.
We’ve been though some of the most unique challenges in generations in just the last few years. We’ve witnessed the housing market ground to a temporary halt only to rebound to levels of excitement never seen before. Through it all, this has been a constant – owning a home is an indelible part of the American Dream. As we proceed into 2023, we are once again seeing buyers adapt to the present playing field and regain some of their bargaining power.
Pauline Bennett is the president of Coldwell Banker Realty in New England.
