Real Estate Predictions for the End of 2023

by | May 19, 2023 | Market Update, The Market Brew

We’re about 6 weeks away from the second half of 2023. There is a lot going on in the Real Estate market right now. I’m going to go through what I see is going on right now and make my predictions as to what we can expect to see for the second half of this year.

So, there is a lot of uncertainty in the marketplace right now. Buyers have begun to accept the fact that rates are where they are, and they likely won’t be coming back down to historic levels again any time soon. On the other side, sellers are sitting on the sidelines for the most part, as many homeowners are reluctant to trade in their interest rates around 3% for something in the 6% range. Then there is the looming threat of US default if congress doesn’t act by June 1st, which would be devastating for the economy and the real estate market.

Lack of Inventory

The inventory nationwide was sitting just above 5 million up until April 2020 when inventory took a sudden nosedive for some reason. (COVID Clips) Then quickly rose back to over 6.5 million by October of that same year. Inventory stayed in the 6 million range for all of 2021 and didn’t begin to decline until the start of 2022. Other than a quick surge in inventory around February of this year, housing inventory is still really low.

If you check out this NAR infographic, you’ll see that as of April 2023, there were approximately 4.28 million homes for sale in the US. Which is a drop of 3.4% from March 2023, and a drop of 23.2% from April of 2022. That’s a lot.

I mean, it’s a lot, but to put that 23.2% annual drop into perspective, things have actually picked up since the drop between October 2022 and January 2023 where year over year sales dropped significantly.

As I’ve said many, many times before. Homeowners refinanced back 2021 and locked in these historically low rates around 3%. Now that interest rates are rising, it doesn’t make financial sense for many of them to sell their homes and take on a new mortgage in the 6 or 7% range. This is completely understandable, but it’s bad for the real estate market as a whole.

Everything I have talked about has been nationwide, which is great for getting a general overview of the market, but terrible for actually informing you of what’s going on within your own marketplace. I’m sure you’ve heard it said many times, but it’s true, real estate is local. And locally, we are doing even worse than the rest of the nation.

I work mostly in the Conejo Valley, so the cities that are most relevant to me are Simi Valley, Thousand Oaks, and Ventura County as a whole. So your particular area may vary, but probably not by much if you are within the area. There are other cities in here, but these are the big two and if you are looking at statistics, the more data the better.

If we are looking solely at new listings, there has been a significant drop between April of 2022 and April of 2023. Simi Valley has had an almost 41% decline, Thousand Oaks with a 48% decline, and Ventura County as a whole with a 38% decline. These numbers, especially in Thousand Oaks, are not encouraging.

Buyer Demand

But so far, all we’ve spoken about is real estate inventory. The number of homes listed on the market are an important metric, but it only tells one side of the story. It only tells you how many sellers are out there, not how many buyers. The principles of Economics are not based on supply alone, but the relationship of supply and demand.

With all of these stats, there really isn’t a sure way to determine the number of buyers in a marketplace. We know intuitively that when interest rates decrease, the number of buyers increases. We also know that when prices increase, that means that buyer demand out paces supply. One metric that doesn’t get spoken of enough is days on market.

If we look at our areas, we can see that the median days on market has increased since last year but is still really low. Anything sub-30-days is extremely low. But what we can see is that buyer demand has waned since last year.

This is to be expected considering rates have increased from mid-4% to mid-6% during that time.

But, if we look at the year-to-date median sales prices, we can see that values within Ventura County as a whole have remained stable, and values within Simi Valley and Thousand Oaks have actually increased a bit. So, despite less buyers overall, and a decline in overall demand, buyer demand still outpaces the inventory.

Future Predictions

So what’s going to happen in the second half of 2023? The way I see things, one of two things is going to happen.

Government Default

Although it’s unlikely to happen, if Congress doesn’t reach some sort of agreement to raise the debt ceiling by June 1st, the US will default on its debt for the first time in history. This will be devastating to the economy, not just real estate. However, should such a catastrophe occur, it is expected that mortgage interest rates will increase to over 8% by September of this year. Should this happen, I expect buyer demand to fall off drastically, resulting in a shift from a strong seller’s market into a buyer’s market as days on market drastically increase, and home prices begin to come down.

I don’t expect a crash. Sellers aren’t going to be flooding the market with homes, they aren’t now, why would they be then? But there would be some pullback in prices. There are also plenty of investors sitting on cash reserves right now, ready to pluck up any cheap real estate that hits the market. This will also help to keep prices from falling too quickly. However, this is the least likely scenario.

Interest Rates Decreasing

What I expect to actually happen, is that mortgage interest rates will continue to decline throughout the year. We won’t be seeing rates down in the 3% range again, but sub 6% mortgage rates are definitely on the table. Inventory won’t significantly increase, but buyer demand will. Just how much demand will depend on just how far interest rates drop.

If rates get too low, all the craziness of 2021 will be back but a bit more subdued than last time. It will be a strong seller’s market with buyers doing everything they can to secure a home. This includes waving most, if not all inspections, which I can never recommend. There will be too much demand for real estate prices to fall, so prices will remain at their current levels, or most likely, continue to rise.

This Prediction Still Sucks

Honestly, I don’t like this prediction. I wasn’t a fan of the crazy marketplace last time, and I won’t be a fan of it should it come back. It’s not good for anyone really. Buyers have to give up too much to get into a home. Sellers, they have all the power, but then they turn around and become buyers themselves.

Nobody knows what is in store for the Real Estate marketplace. We can only make predictions based on the data we have available.