This article is part of our 2022-23 Housing Market Forecast series. After the series wraps, join us on February 6 for the HW+ Virtual 2023 Forecast Event. Bringing together some of the top economists and researchers in housing, the event will provide an in-depth look at the top predictions for this year, along with a roundtable discussion on how these insights apply to your business. The event is exclusively for HW+ members, and you can go here to register.
The last year has been a completely split housing market — one that started with the lowest inventory NAR has recorded dating back to 1999 and one with low mortgage rates. In the first few months of 2022, primary-residence buyers and second-home buyers (investors and vacation buyers) flocked to the market at a frenzied pace under the correct assumption that mortgage rates would rise.
The market has now faced a contraction in existing-homes sales for nine consecutive months, while home prices and rates rise. The housing affordability crisis has pushed potential buyers to the sidelines.
Unfortunately, the frenzied pace of the real estate market at the beginning of 2022 coupled with the affordability crisis and low inventory throughout the year means first-time buyers were left out. At the height of the spring market, the typical home had 5.5 offers, according NAR’s REALTORS® Confidence Index.
Potential buyers who may have had an FHA or VA loan were left behind as about one-quarter of the market was paying all cash for homes. First-time buyers dropped to the lowest share NAR has recorded in the Profile of Home Buyers and Sellers — just 26% of the market, compared to 34% the year before. A healthy historical market for first-time buyers should be closer to 40%.
One projection for 2023 is an easier buying market for first-time buyers. First-time buyers will need higher incomes to meet the higher interest rates (which may decline) and higher prices. However, a smaller pool of buyers means less competition and a larger chance to have an offer accepted.
Due to the recent rise in mortgage rates, homeowners may just stay put. While this is bad news for the inventory crisis and potential buyers, it could be good news for remodeling contractors. Homeowners have gained housing equity in their homes consistently as home prices have risen. The typical owner who has owned their home a decade has $210,000 in housing equity. That equity could certainly make a move easier, but they may be unwilling to budge.
It is possible the needs of the homeowner have changed throughout their tenure in the home, and they may need to rethink how they use their home or just fix features and systems due for an upgrade. As owners think through remodeling projects, some may be done for their Joy Score, while others for cost and value recovered on projects. If a resource is needed, NAR’s Remodeling Impact report is a great place to start.
For the last two years, in many housing markets, sellers could expect an offer quickly and above list price in many instances. For some, the idea of staging and easy remodeling fixes to sell did not need to happen to quickly obtain a buyer.
Currently, most homes are being priced competitively by REALTORS® and 24% are still selling above list price, with the typical number of days on the market at 21. However, more buyer and seller equilibrium may revitalize the need for home staging. Nearly half of REALTORS® who work with buyers say staging has an effect on buyers’ view of the home and increases the dollar value offered on the home. Four-fifths of buyers’ agents say it is easier to visualize the buyer in the future property. When attracting a buyer, why not make the product shine in the best light?
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
To contact the author of this story:
Dr. Jessica Lautz at jlautz@nar.realtor
To contact the editor responsible for this story:
Sarah Wheeler at sarah@hwmedia.com
