TL;DR Both mortgage rates and consumer demand reflect a strengthening market after a challenging Q4 Quality inventory remains constrained, with transparent pricing allowing properties to move quickly while leveling the market Buyers continue to benefit from partnering with well-versed, experienced agents who provide off-market opportunities
In 2023’s first edition of The Landscape, we observe and analyze trends that emerged from December and January’s residential transaction data to identify potential trends for how the year might unfold.
Since our November edition, we’ve witnessed the Federal Reserve raise interest rates from their 5000-year low at a record pace. However, we do see signs of the market softening after several months of volatility leading into the holiday season and the new year.
Where are we today? Let’s dive in.
Rates for 30-year conforming loans peaked in November 2022, breaking the 6.5% threshold and gradually falling to their current levels of 5.7% in New York and California. In markets like Los Angeles, San Francisco and Palm Springs, consumer demand levels have not materially waned. In fact, competition has re-emerged as buyers enter a window of seller negotiations in a more manageable rate environment. As the Fed has moderated the pace of rate hikes, lenders are increasingly paying attention to the quality of consumer credit, which remains near historical highs. We expect rates to remain between 5% to 6% throughout 2023, with some expected degree of volatility as additional economic data, such as unemployment rates, emerges.
Quality inventory at all price segments remains constrained in all of our core markets, with transparently priced properties moving quickly, particularly in the luxury segment. Inventory across our markets has increased from historical lows but remains between 2 and 3 months of supply, a signal that the market has yet to tilt to a true buyers market. Some buyers who have been on the sidelines for the past few months since the rate shock, especially ones with cash, are now seeing the market as more approachable - and one where well-versed agents can provide outsized value in their ability to find off-market opportunities. In October 2022, according to data provided by Redfin, ~20% of all transactions in Los Angeles and San Francisco were all-cash, and ~31% in New York City. As the Fed continues its strategy of inflation tempering, buyer competition in these markets may increase in 2023.
Pricing has moved in favor of buyers, with nearly 42% of all listings in-contract with some degree of seller concession during Q4 2022, according to Redfin. Bidding wars are no longer the norm, and more properties are selling at the list price - a sign that sellers and their agents are setting more transparent pricing.
So are 2023 conditions going to be an amalgamation of 2021 and 2022? Many are trying to do this math - is there a degree of sustained buyer exuberance from 2021 (driven still by shifting work-from-home behaviors) but tempered by the 2022 market adjustment? Yes and no. Certainly the economic outlook and hopes for a soft landing are by no means a foregone conclusion. One thing that is clear - 2023 has come into its own. It is a year that so far has been marked by cautious optimism in the minds of buyers and sellers, with the bid/ask between the two continuing to compress as we get closer to the busy Spring season. To get ahead in this market, luck will always favor the prepared.
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