The Rebound of Real Estate Market Behavior
June 19, 2023 | Market Trends
Let’s look back a year.
2022 saw a meteoric rise in home values in the first four months of the year, driven by incredibly low interest rates in the 3% range for a 30-year fixed mortgage and the lowest inventory on record in Colorado.
The average price per square foot for a single-family home in the Denver metro area jumped from $309/ft to over $361/ft in just four months, from January to April 2022. (NOTE: On average, larger homes are selling in 2023)
During that same time, the average sales price moved $160,000 in 120 days from $666,324 to $827,401.
Everyone was making money in real estate. Stupid money. In stupid periods of time.
Then it happened.
Mortgage interest rates began the most rapid climb in American history, with a 30-year fixed mortgage moving from 3% in March to 5% by May, almost 6% by July, and over 7% by October.
The result was a collapse of buyer activity. Weekly home showings went from over 30,000 in a week to under 20,000 just two months later. Buyer activity continued its decline through year-end as rates continued to climb.
It was an emotional period for buyers who could no longer afford to buy or were simply shocked and mad at the increased cost. Sellers were dealing with a significant shift in market conditions that included lower offers and longer marketing time.
It wasn’t a collapse, but it sure felt like it to many homeowners and industry professionals. It was a major correction from a rapid run. And it was an emotional adjustment from the “ease” of the previous couple of years, where everybody made money in real estate.
While interest rates remain elevated (with some decline), 2023 became a cautious market.
Buyer activity has been steady but markedly lower than in years past. The Denver market has only experienced more than 20,000 showings in a week four times this year.
Sellers, too, have been slow to market. Year to date, only 21,000 homes have hit the market in the Denver area, compared to a last 10-year average of 29,000 homes.
But see the correlation? We’ve had a 33% decline in buyer activity and a 28% decline in seller activity. What does that create?
While interest rates remain elevated this year, buyers got past the emotion of interest rate change and are again allowing life conditions to drive their real estate purchases rather than cheap capital.
Many homeowners have decided they are either content with their homes or in love with their payments and are making fewer discretionary moves in 2023. Instead, it is job changes, babies, divorce, and other life events that are driving more seller behavior.
The Rebound of Market Behavior is getting back to what real estate always was. A home. A place where life is experienced, love happens, families are raised, and a reflection of life rather than a piggy bank of monopoly money.
So what we are experiencing might actually be beautiful. It might be the rebound of human behavior. Of getting back to asking some big questions like, what’s most important? What do I really want? How do I really want to live my life, and what are the conditions that best allow that?
Most of the time, it isn’t a new car, a bigger house, or shinier toys. Most of the time, the answer lies in much simpler pursuits.
But what does all this portend for real estate between now and the end of 2023? A handful of most likely outcomes.
Sellers will remain slow to the market. This will keep inventory low, but inventory will modestly rise.
This rise in inventory means more competition. As long as sellers do a great job of preparing their homes, they’ll still sell relatively quickly and for a strong price.
Marketing times are going to increase; buyers will have more homes to choose from, and more offers will be below the asking price.
Sellers need to prepare their homes extremely well, price their homes well, read the market with their agent weekly, and be prepared to adapt to what the market is telling them. That might be a price reduction, and we will see a lot more price reductions between now and year-end.
But in any market conditions, sellers can maximize their value by doing the right things.
Buyers will have more homes to choose from over the next 4 or 5 months. If interest rates remain steady, buyers will actually have more purchase power as a result of a slow decline in asking prices by sellers driven by the rise in inventory.
Buyers will be able to ask for things from the seller, like rate buydowns, closing costs, and inspection items.
But buyers can get lazy too. Buyers who have not completed their financing will be at a competitive disadvantage, will create liability for themselves through the purchase process, and will weaken their bargaining power with a seller from contract through to closing.
Buyers must nail their financing and cash to close before writing offers.
The next 4 or 5 months will be a great opportunity for buyers who commit themselves to do the work upfront because way too many sellers and agents will be lazy in their approach to the market.
The first half of 2024 likely sees home value appreciation yet again, and sellers will be back in the driver’s seat.
Lots of questions will impact where 2024 goes. Election year (Oh help us), federal reserve monetary policy, geopolitical considerations, population migration, and the US economy and resulting jobs market.
But these variables are always in play. Don’t make decisions trying to predict the future. None of us can. Joy will exist in asking and answering the question, how do I want to live?
The beauty is in realizing the answer to that question is different for all of us. Our joy is in honoring what’s true for us individually versus doing what everyone else has always done.
Maybe it’s time to sell and travel the world. Maybe it’s time to live in the mountains or on a beach? Maybe it’s time to let go of the idea that we will be “enough” when enough people think our house is cool.
How do YOU want to live?
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