It’s time for me to make my predictions on the upcoming year in real estate, so here we go!
People are always interested in the prices of their homes, in their neighborhoods, and in their cities, so I will start here. Fortunately, as we end the year, prices have increased year over year by 8% in Northern Virginia. Other areas of the country have appreciated up to 22%; I don’t believe this is a healthy number, so I think we are in good shape with pricing. While a majority of the 8% was attained in the first half of the year when we had a frenetic market, things have stabilized. With an average sales price of $710,000 in NOVA, who wouldn’t want an extra $56,000+ in net worth? Luckily, we aren’t in areas where their prices were down as much as 5.8%. For 2023, I believe we will have, on average, a 3% appreciation rate. Some houses will sell below market value and others will sell for more – people and property conditions are the deciding factors in each situation, but a housing crash is not on the horizon.
People are also interested in rates since they control buying power if they are selling, and potential refinance opportunities for themselves if they need to refinance. We started the year at an unbelievable rate of 3.22%, and then they raised to a historical rate of 7.5% – rates have never gone up 100% in one year, much less in 6 months as they did in 2022. Currently, rates are in the mid-6s. Either way, I believe rates will be in the low to mid 5’s by the second quarter and remain there for the rest of the year. This, of course, is dependent on inflation and how the Fed deals with it regarding their rate hikes. I think they’ll only have a few, modest rate hikes to keep inflation in check, so rates should remain more stable this year.
This year we’ll also look closely at inventory. We continue to see fewer and fewer homes for sale in Northern Virginia. Inventory of existing home sales is down 55% from 2018, 46% from 2019, 24% from 2020, and even down 8% from last year. There are a few factors to consider why this is the case. People refinanced in 2021 and early 2022 in the low to mid 3% range, and they’re not willing to give up that rate for a much higher rate, so they aren’t selling. As a result of not putting their property for sale, inventory levels go down – it’s a simple concept, but true. If you are considering buying, historically, inventory will pick up as we get into the 3rd week of January and further into the year. The good news is lower inventory levels will also keep prices stable moving forward, and limited supply results in stable to slightly increased prices.
Lower inventory means we’ll have fewer sales. I like to compare 2022 and beyond with pre-pandemic years, as those years were anomalies. Our sales in 2022 were down 8% from 2019 and were down 6.5% from 2018. As we still have demand for housing because inventory is down substantially, I believe sales will be down to 7-8% this year. However – if rates get into the low 5s or high 4s, we may see an uptick in sales.
There’s been a lot of hype around distressed properties. Because of price increases, people will sell before they do a short sale or go into foreclosure to take advantage of the equity they have in their homes. During the great recession, people had negative equity and as a result, walked away from their houses. Lending guidelines are stricter today than they were in the early 2000s so people actually qualify and can afford their homes today. With equity, low inventory, and buyer demand, people will sell versus lose out, but one thing to keep an eye on is unemployment.
Additional key indicators to watch in 2023 are inflation, Fed increases as a result of inflation, stabilization of inflation, and unemployment. It seems inflation is in check, and we’ll start to see year-over-year decreases, so I think the Fed should only have a few increases. Currently, unemployment is around 3.75% and historically we have between 5-10%. I think we’ll see job cuts in the tech and real estate sectors (mortgage, title, iBuyers, and PowerBuyers) so we could get to 5% unemployment, but it won’t have a drastic impact on the housing market.
As we know, time will tell, and barring any other worldwide issues, this is how I see our market moving forward. If you are considering selling, buying, or investing in real estate, call me to discuss how all of this impacts you.
Happy New Year and hope 2023 is your best year ever!