the 2023 housing market—my top 5 takeaways
A new year has begun and it’s time to discuss what Realtors, economists, statisticians, etc. are anticipating for the housing market in 2023. If you couldn’t already guess, I’ll be sharing the top 5 take-aways I had from the recent Salt Lake Board of Realtors Housing Forecast event, so sit down, relax, grab a drink, and let’s get into it!
Inventory in Salt Lake City, and nationally, is historically LOW.
Inventory accounts for the supply in the supply/demand equation. Economists are anticipating only 12,000-13,000 total home sales for 2023 in Salt Lake County. The slow down in sales is likely due to reduced urgency for both buyers and sellers and the increased security of homeownership through equity and appreciation gains.
This can be a deterring fact for buyers out there, however, there is hope for you so keep reading on! As for sellers, this is still a contributing factor to the seller’s market. Listings, when priced and timed appropriately, are often seeing multiple offers reaching asking price if not slightly higher. So if you’re considering selling, this year may still offer higher equity gains, similar to the previous two years.
High job growth and an increase in population continues to drive demand in Salt Lake City, Utah.
Utah has had a 6.9% increase in actual additions of salaried jobs to the marketplace since pre-Covid times.
Additionally, we’ve seen the unemployment rate in Salt Lake City go from 2.2% in Q3 2021 to 1.9% in Q3 2022. With the addition of new jobs and the low unemployment rates, the demand for home purchasing is expected to continue to remain high.
Now, based on the principles of supply and demand, we expect that a housing bubble in Salt Lake is highly unlikely. Historically, housing bubbles have coincided with high unemployment rates—due to higher foreclosure rates, less purchasing power, and other contributing factors. Knowing that a bubble is unlikely and that demand is high, we are still in a seller’s market.
Current homeowners are sitting on tons of equity.
As a homeowner, you’re continually paying a mortgage (debt) that ultimately buys your equity in the ownership of your property. That’s why people often claim that ‘paying rent is like throwing money away’—they’re claiming that paying rent to another property owner puts money in their pocket (which compounds in many ways) and takes wealth out of your own pocket.
I could discuss both sides of this argument: on the one hand, if you’re not ready to buy (ie. needing to save for a down payment or waiting to move to a new city/state etc.) renting is absolutely a valid living situation. On the other hand, paying your landlord’s mortgage (by paying rent) can feel like a waste of money because it is not going back into your pockets. That money can feel “lost” to another person’s equity gain. And that equity gain is two fold because they’re paying down their mortgage while their property (generally) continues to appreciate with the market.
But on top of all this, rental rates rose nearly 15% in 2021 and are expected to rise another 4% in 2023 alone (CBRE and NAR Forecast). So, in the grand scheme of things, property owners are going to continue to see equity gains as both the housing market shifts and as rents continue to rise.
The Federal Reserve has determined that the ratio of housing assets (aka equity in one’s property) is nearly two times the amount of their mortgage debt. Property owners have more in equity than they actually owe on their mortgage, offering significant opportunities for major payouts if they sold. Of course, there’s dependence upon the market and timing of listing, but generally, we can still expect seller’s to make significantly more money on the sale of their house than they had pre-Covid.
This can still be said about new buyers this year. No, we may not see appreciation as high as it was last year, but we’re seeing prices stabilize. If a decrease in prices happens, it will not be a significant enough amount to make buying now and holding for 10+ years a poor investment strategy. In the long run, real estate investment—even on the home ownership level—is a generally safe investment strategy as we’ve seen that the median home price in the Salt Lake metro area has increased nearly 5 fold since 2000.
Properties are sitting longer than in the height of the Covid market frenzy which is offering buyers more time and negotiation power.
Improperly priced or poorly timed listings are sitting on the market and racking up DOM (days on market). This is not an ideal situation for a listing agent or seller because that means their property isn’t getting traffic through showings, let alone getting offers. It is usually due to a mistake in their pricing strategy or missing the timing of hitting the market. As a seller, it is crucial to take into consideration if your agent has a solid pricing strategy for your property and neighborhood, because that is how you will sell your property for the right market value.
As for buyers, this no longer means either the property has something wrong with it, and rather offers you more negotiation power. We’re seeing that buyers going under contract on properties within the first week of its hitting the market are already starting with about 4-6% reduction of sale price from original list price. Listings sitting at 61-120+ DOM are reaching between 8-10% reduction of sale price from the original list price. These reductions can be made through sellers contributions of buying down interest rates, actual reduction of sales price, or a combination of concessions.
Ultimately, though we are sitting still in a seller’s market because of the supply and demand ratios, buyers are able to hold their ground without giving up an arm and a leg to get into a property. As a buyer, this might be the perfect time for you to buy if you’re uninterested in entering competitive situations or if you have a lower purchasing power.
Lastly, we will not be seeing mortgage rates drop to pre-Covid rates, like ever again.
I guess never say never, but most economists are anticipating rates to reach a peak between Q2-Q3 2023 and then reduce a bit and taper offer between 5.5-7%.
We saw historic rate hikes during 2022 which were unheard of in the past 20+ years. And with rising inflation rates, the Fed had to get involved. In December 2022, the Federal Reserve anticipated that the rate of inflation should taper off during 2023. Likely, the interest rates will continue to coincide with the inflation rate and we’ll see a joint taper of rates towards the end of 2023.
Now, as a buyer, this news isn’t necessarily saying it’s a bad time to be a buyer. The interests rates prior to mid 2022 were extremely low, historically low. With the expected higher rates, between 7-9% we might see in the near future, they are a little unreasonable for those buyers just trying to get into the homeownership journey.
However, if this is your time, your finances are in place, your lease is ending, and you’re ready to purchase, there is hope in the near future that rates will come down and you can refinance into a better, more affordable rate.
An added layer to consider is the opportunity buyer’s have for more negotiation power. Buyers can ask for rate buy downs from the seller and get into a home for 4-10% lower than the original asking price, which was nearly impossible prior to July 2022.
Wow, you’ve made it to the end of this. You’ve learned all about the biggest things you need to know about the housing market this year.
Yes, thats a lot of information to take in and process. I hope it proves helpful in your homeownership journey and if you have any lingering questions, please reach out!
As always, my intent is to educate and empower my clients to make the best decisions for them in their own time. If it feels like the right time for you to buy or sell, I would love to be in touch. Send me a message and let me support you through the throws of Real Estate!
