Home Values, Mortgage Rates, & Our Predictions for 2023
At the 812 Living Group, we track real estate data in order to spot local and national housing trends that may provide useful information to our clients during the home buying and selling process. Please note some of these trends can be attributed to seasonal patterns, national and regional economic forces, and/or issues specific to our local market. Here’s a summary of what you’ll learn in this article:
The Southern Indiana real estate market looks much different to end the year than it did at the start of 2022. In January of 2022, we saw low mortgage rates, low housing inventory, and multiple buyers for every house that hit the market. This created a chaotic environment where prices were rising and homes were selling quickly to the highest bidder.
The run-up in home prices and the shortage of inventory, along with other challenging economic factors, led the U.S. Federal Reserve to begin hiking interest rates in March in an effort to slow inflation. All told, the Federal Reserve hiked rates seven times in 2022 causing mortgage rates to more than double. These hikes served to slow buyer demand and thus home sales in the 4th quarter of the year.
*Chart Courtesy of Forbes Advisor
We highly anticipate that the Federal Reserve isn’t done yet and will continue to raise the fed funds rate again as we move into 2023, albeit at a slower pace than previous hikes. It is possible these hikes could continue to push mortgage rates higher until such time that the Federal Reserve indicates they have reached a pause in their fight against inflation or until the market deems the risk of rate hikes is coming to an end.
Below we have included a few of the charts we follow and added some commentary to help you understand what we are seeing. At the bottom we offer an overview of where we see the market at today and our best guess for where we see it going in the early months of 2023.
Typically we save our ‘Mortgage Rates’ section for the end of our report, but once again we believe what has happened with mortgage rates in the last 12 months has impacted every other chart you’ll see in this report. So with that in mind we’ll start here.
During the first week of January 2022, the 30-year mortgage rate was at 3.33%. Two and a half months later, in March, we were above 4% and by early June we had cracked 6%. In November, some borrowers were seeing mortgage rates above 7%. But despite an additional 50-basis point rate hike in December, mortgage rates have slowly ticked back down to just under a 6.15% national average for a 30-yr conventional mortgage as of the time of this writing.
*Mortgage rates and chart courtesy of MortgageNewsDaily.com
In our last report in November, Truflation was showing U.S. consumer prices rising at 7.3% year-over-year. Their most recent Truflation Rate shows that prices continued to fall going into the end of the calendar year with the rate now hovering at 5.70%. And although this shows prices continue to rise, it is a much improved from the 12% increases we saw in mid-2022. Note: Truflation.com, an independent research group, uses their own proprietary approach to measure inflation and their data differs from the U.S. measure of the Consumer Price Index, or CPI.
*Chart courtesy of Truflation via Truflation.com
With the last several Consumer Price Index (CPI) reports published by the federal government, we have seen some categories of goods and services continue to fall while some have remained stubbornly high. We will continue to monitor each month’s CPI release for evidence of falling prices.
Number Of Homes Sold
Now onto the real estate charts.
As you can see from the chart below, the number of homes sold has fallen steadily since July. We contribute this decline almost completely to the significant rise in mortgage rates since March. Despite the drop in the number of units sold, the market still “feels” relatively healthy with sellers still seeming to have a slight upper hand in many transactions at this time. Having said that, this is a data point we will continue to watch closely in the coming months..
This chart shows the total number of homes sold in the Southern Indiana real estate market (Clark, Floyd, Harrison counties) per Southern Indiana Realtors Association (SIRA) MLS data over each of the last 14 months.
Homes For Sale
The number of active listings available (also known as ‘home inventory’) shows how many houses are available for buyers to purchase. A shortage of home inventory in the Southern Indiana market (and nationwide) has been a key driver in sharply rising home prices over the last several years.
The chart below shows that active listings have been rising steadily now since February. This is good for buyers who have been begging for more inventory, but it comes at a time when mortgage rates have made housing payments less affordable.
Historically in Southern Indiana we will see the number of active listings tend to fade as we move toward the winter months and the holiday season. That played out again in 2022 as we saw active listings fall in December.
Average Sales Price
The average sales price of homes in Southern Indiana appears to have peaked at approximately $283,000 in July and has been ticking up and down between roughly $260,000 and $273.000 for the last few months. We don’t believe it is a coincidence that mortgage rates have bounced up and down during the same timeframe.
Days On Market
The number of days a house is on the market gives an indication of the level of buyer demand.
The chart below reflects DOM (Days On Market) for houses in Clark, Floyd, and Harrison counties but with new construction homes removed.
Builders will often list a home for sale once they pour the foundation for the home or at least prior to the home being “move-in ready”. This can skew the numbers and make it look like houses are taking longer to sell than they really are. This is especially true when we have a healthy new construction environment like we have had recently in Southern Indiana.
As you can see, the average number of days on market increased four months in a row beginning in August, but decreased in December. Again we believe rising mortgage rates played a large role in slowing the pace of buyer demand over the last part of the year. As the number of active listings started to fall again in December we did see houses sell a bit quicker (70 Average Days On Market) than prior months, although still much slower than the 55 Average Days On Market recorded in August.
It is interesting to note that while the market overall is becoming more balanced, there are still houses which are in good condition and priced well that are selling very quickly.
Good News On Rents
Historically, when housing prices rise, we see people move to apartments and rentals for a housing alternative. The issue we’ve seen over the last few years is that rent rates have been rising as much, if not faster, than the cost of purchasing a home.
While “Annual Rent Growth Percentage” has been slowing, Median Asking Rents have stayed stubbornly high and even ticked back up slightly in November. All of this after a near record number of rental units came online across the U.S. in 2022. An estimated 450,000 more units are on the way in 2023 which may help bring rents down over time, but for now median rents remain significantly elevated compared to where they were pre-pandemic.
*Chart courtesy of Redfin.com
For many, it is still likely cheaper to purchase and pay a mortgage than it is to pay for rent when comparing recurring monthly housing payments on equivalent sized dwellings. But housing affordability still remains a challenge for many especially given rising prices in other areas of their budget.
What Does All Of This Mean?
So what does all of this mean for home buyers and sellers?
It is our opinion that the current real estate market is moving towards a balanced market, but still slightly favors sellers in many price points. However the sellers' advantage has certainly softened from its peak earlier in the year and some properties that stay on the market for more than a few weeks may need a price drop or more concessions during negotiations to move the house.
Inventory is up and down. As we saw in the chart above the inventory of homes for sale rose into the end of the year, but dropped in the month of December. That trend has continued into the first few days of the new year as we’ve seen inventory levels drop consistently each day. If inventory numbers continue to fall into the spring, when we typically see an uptick in home buying, it could create another chaotic housing market come springtime.
Buyer Demand remains steady. While it’s true that buyer demand dropped off a bit, especially when mortgage rates ticked above 7%, we’ve seen buyers re-enter the market in the last several weeks at many price points. Homes that are well priced, in good condition, and are well staged continue to see healthy demand and often sell quickly, although typically not at the blazing speed we saw in 2021 and early this year. We are seeing buyers start to get more picky when it comes to the condition of each home due to the fact that they may have more options for other houses that fit their needs than they had twelve months ago. But again this is subject to change as we move towards the spring.
While buyer demand is still healthy, we continue to see far fewer multiple offer situations, fewer showings per home, and fewer houses selling above asking price.
We do not have a crystal ball, but we often use this space to make predictions about what we believe the coming months hold for the Southern Indiana real estate market. Given some economic uncertainty on a national level and rising interest rates, we are less confident in our predictions for what the short term holds for home sales. Having said that, we offer our best prognostication given the data we have and what we are seeing firsthand in the market.
One scenario that could play out is another hot housing market come springtime. Much of this will depend on what the federal deserve does with rates. As of this writing we are seeing mortgage rates hold steady, housing inventory falling, and buyers coming back to the market. If all of this continues into the spring, we could be in for another doozy of a market. But, lots of “ifs” here.
If mortgage rates rise going forward, we believe home buying will continue to moderate and the pace of home sales will level off. While this may disappoint some home sellers who missed out on selling at the peak, we believe it will be healthier overall for the housing market and buyers and sellers alike. A more balanced market will give home buyers options and time to make sound buying decisions, and sellers will have more places to move to once their home sale is complete while still getting a good and fair value for their home.
Many of the economic experts we follow are predicting the Federal Reserve will in fact raise rates multiple times in the coming months in order to halt inflation. The consensus is expecting a 25 to 50 basis point hike at the meeting in early February and another 25-basis point hike in March. This will cause some short term pain, but is likely needed to help household budgets long-term.
As always, we will continue to monitor the markets and educate you on what we see. For the most up to date information, please subscribe to our blog at www.812Living.com/blog and we will send updates directly to your email inbox as the market changes.
If you would like more information about the value of your home, or to find out what is selling in your area, please contact us and ask about our “Neighborhood Watch” alerts.
Mike Schoonover, Realtor
812 Living Group
Keller Williams Realty
*Please note, any forward looking information contained herein is strictly our opinion and is subject to change without notice and as such it should not be acted upon without first consulting your professional advisor(s).
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