… or it’s time for “Questions and Guesses”
Writing about real estate is a little like writing about having a dog—in the sense that a lot of people are familiar with the topic. Sure, you may not have purchased a house in a while (or a dog for that matter), but you still likely have a general sense of what is happening in the real estate world.
With that in mind, let me remind you of a few things you already know:
• Interest rates are up, maybe almost double what they were 6 months ago.
• Buying has slowed down, and everyone who is buying is planning to refinance in a year when the rates are better.
• Home values are going to start dropping if they haven’t already.
• Inventory may be a little better but not much.
How’d I do?
Now, here are some open-ended questions:
• When will interest rates come back down? And where will they settle?
• Will buyers keep buying next year?
• What about prices? I hear they are falling now.
• If I wait until next year to buy, will I have more options than now/this
Six months ago, we were talking about multiple offer scenarios, homes selling at or above list price, and first-time home buyers struggling to find a way to beat out cash offers. None of these questions were on the horizon in May. A lot can change in a short period of time.
Naturally this time of year (and with the recent volatility) there is a lot of speculation about next year. Most of what you will read and/or see in the coming months will be based on national statistics and forecasts. In light of our inability to predict the future (see paragraph above), here we’ll instead attempt to offer a few educated guesses as to what we can expect here in the greater Lynchburg market in 2023.
I’m no expert in forecasting future interest rates, but what I can tell you is that the lenders I work with believe rates will ease off their current highs sometime in mid-2023. While it is true that the Federal Reserve rate hikes have affected mortgage rates, that is not always a one-for-one exchange. At times, a hike in the Fed rate causes mortgage rates to rise sharply, and other times it doesn’t affect rates as much.
From what I am hearing, the secondary market (those who buy mortgages from lenders) anticipates rates dropping, and thus today’s borrowers will refinance out of their current loans, therefore decreasing the profit on those loans and rates.
Where will rates land? That’s anyone’s guess. For perspective, I started telling people that when we bought our first house in 2001, the rate was 7.25%. And it’s never been higher since then. That’s a pretty good run.
I can say that here in Lynchburg, buyer activity has slowed. Of course, some of that is due to the time of year, some of it has to do with inventory, and some is a result of interest rates changes. I do think we may see a better balance of supply and demand next year—if only because some buyers will opt out of the market for a time. At the same time, if competition is not as fierce, sellers who were holding off on selling may opt into the market, since the “Sell & Buy” scenario could be more manageable.
For a time this spring, our inventory was the tightest we’ve ever seen. I run the figures once or twice a week and the lowest point was April 25 at .73 months, or 3 weeks. But from March 14 through May 25, it was less than a full month of inventory.
As of this writing, it is 1.92 months—an improvement for sure, but nowhere near a “balanced” market (which is 4 to 6 months).
Everyone wants to know, yet no one really knows. Here’s a tip, though: When reading articles or seeing news stories about falling home prices, unless it’s a local Lynchburg story, take it for what it is—a sweeping summary of the national real estate market.
I think, for the most part, prices in Lynchburg leveled off sometime this past summer. That’s when the upward trajectory hit a plateau. Here are the average home sales per quarter going back to January 2021:
Q1 2021 $228,908
Q2 2021 $246,327
Q3 2021 $264,187
Q4 2021 $271,308
Many homes listed from July onward were still anticipating the same rate of appreciation, so when those list prices are reduced, they’re really coming back down to the plateau we hit earlier this year. Yes, it’s a price reduction, but in many cases it’s not a true loss of value.