Where the real estate market was, and where we are today By Jennifer Hawkins, key2see Team|Photo by In Gear Media
As we close out on the third quarter of 2023 and enter into fall, I find this to be a great time to reflect on previous years’ real estate forecasts.
Our firm prides itself on attending as many economic and real estate forecasts as we can fit in before the beginning of each year, as we feel it can help us to guide clients in making lofty decisions with their real estate. So, let’s take a look at how we measure up comparatively to last year's forecast.
2023 Forecast: January 10, 2023
The hot topic was interest rates because June of 2022 was when the Fed had a direct hit on rates, doubling in a few weeks from what had become our new comfort level of 3 percent to an astounding 6 percent nearly overnight, absolutely halting the hot summer real estate market. The reason for this was the government's intent to slow spending.
During COVID, Americans had an abundance of savings and little to no spending. However, once they were released to the wild again, Americans turned on the heat—causing the country's average savings to decrease to less than 10 percent, and their credit card debt was the highest in American history. These things typically lead to inflation, recession, and a forced slowing of the economy … which all lead to climbing interest rates.
However, if you pair that with the fact that 33 is the age of the average “first time home buyer” and now the Millennial (the largest buying demographic since the Boomer) is 33 years of age, it was anticipated that would stimulate a steady market even through high rates.
Another factor being the Millennial's entry-level jobs are nearly six figures in our local area, and they NEED homes after living in tight quarters or with family during the pandemic. That is why we don’t anticipate a crash but a slow.
Now let’s compare that forecast to where we are now.
Mid-Year 2023
The forecast proved to be true in most areas. While we were stung by 6 percent interest rates, it turned out the Fed wasn’t done yet as we now sit in the low 7 percent or high 6 percent. However, what that continuous rate hike did accomplish is exactly what it needed to.
Inflation hit an all-time high in 2022 of 9 percent, absolutely stifling spending. Gas prices and grocery prices curbed people traveling, shopping and definitely MOVING! This created a 12 percent drop in sales in the real estate market here locally (per NWMLS stats). Not to mention due to the HUGE hikes in home values 2020 to mid-2022, 84 percent of Americans have below 5 percent interest rate, making it hard to justify a move.
Here is where our earlier assumption comes into play … the wealth of both the Boomers and the Millennials. The Boomers own their homes outright and have the cash flow to afford higher rates. As expected, that kept the real estate market afloat with an abundance of cash transactions here locally, avoiding the rate hikes together. Boomers were finally able to downsize after sitting on the sidelines during the multiple-offer craze, and the Millennials were finally able to get out of their little condos to start families.
Due to that steady slow in the market rather than a crash, we are now sitting at a 3 percent inflation rate (August 2023) with an expectation of easing interest rates as our economy will be able to start rebuilding.
Comments