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Market Conditions Update: February 2023

Will the dramatic ups and downs and buyer and seller hesitancy continue for a week, month, or year from now?

Like others in the industry, we’re closely watching national and international events to gauge the housing market’s direction as we head from February into March and look forward to the rest of the year. In this market conditions update, we note concern about the lack of inventory, high-interest rates and prices, and external elements that influence supply and demand. This includes inflation and deepening worries about recession, locally and globally, climate change, and continuing political and military conflicts.

We ask ourselves: “Will the dramatic ups and downs and buyer and seller hesitancy continue for a week, month, or year from now?”

It’s Not All Doom and Gloom

Financial and housing experts don’t see the reason for people to fear current real estate market conditions. In fact, they’re noticing indications that the market is finally achieving significant positives after years of increasing negatives:

The state of borrower equity is a significant indicator that conditions are improving beyond pandemic norms and past financial crises. In the past, homeowners didn’t have the means to keep up with payments or equity to fall back on during emergencies. In 2023, more borrowers can claim the opposite. They have more equity than homeowners 20 years ago, which means that a housing market crash or further instability is unlikely to happen anytime soon. 

During a crash, more people experience a significant loss of home value and mortgage default. Foreclosures increase while home prices drop 20% or more. Fewer people are able to invest and are willing to take the plunge. 

Home sale prices, the number of sales, and nationwide foreclosure activity remain within ranges that indicate positive gains. Stability continues to trend in the market from strong equity and pandemic protections that helped homeowners make timely payments. The ATTOM Data Year-End 2022 U.S. Foreclosure Market Report revealed that foreclosures in 2022 were significantly down compared to pre-pandemic 2019 (34% down). 

The Most Important Areas to Watch

Real estate market conditions are always in a state of flux, which means that current market conditions provide insight instead of guarantees.

Construction of new homes hasn’t been great since 2008. No one is expecting a dramatic improvement any time soon, especially given continuing high material costs, backorders and shipping difficulties. Additionally, nationwide home inventory is predicted to remain stagnant. Demand and related property prices stay high enough to keep homes off the market.

Yet, after a year of low builder sentiment, the February National Association of Home Builders (NAHB)/ Wells Fargo Housing Market Index (HMI) report showed that more builders feel optimistic about the future new-construction market. Builders are also focusing on new rental properties, meaning the overall market might see more interest in home construction by individuals and companies interested in offering rental and rent-to-own rather than immediate-purchase properties. 

Opportunities Exist in Many Local Markets

We remain optimistic because a one-example-fits-all perspective doesn’t work with a nation of diverse geographic areas and populations. 

Although low inventory and high raw material and home prices well beyond pre-pandemic norms continue to adversely influence sales across the country, pockets of opportunity exist, especially in areas that didn’t experience pandemic-heightened levels of growth. We anticipate increased buyer interest in these markets due to a broader selection of affordable housing options, stable local economies, and job markets. Less risky mortgages with improved rates over two-decade highs and better borrowing options for veterans, military personnel, first-time owners and minorities also indicate such. 

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