Happy New Year! With 2022 behind us, we wish you the full optimism, energy, and momentum that comes with the arrival of a brand-new year! Throughout 2022 we talked with many of you about our housing market. What a crazy year! The first half of the year was a frenzy. By mid-year, the market momentum stalled with the rising interest rate, and the rest of the year was in retrenchment. We will start the new year by providing a market summary. Hopefully, it will also shed some light on what’s ahead.
~We had record-low interest rates in the last three years. This low interest rate has helped make mortgage payments within reach for many buyers. Even as we heard how challenging it was to find a house to buy, many buyers could still get into a home. It was a very robust period where many buyers and sellers accomplished their real estate goals of homeownership, upsizing, or downsizing.
~The COVID-19 pandemic led to a population migration within our country, driven by the people’s desire to have more living space and the ability to work remotely. Florida became one of the top destinations for this post-pandemic migration. The population inflow to Central Florida drastically increased the demand for housing.
~Like anything else, the price escalated when the demand far exceeded the supply. From late 2020 on, sellers had multiple offers on their homes. Buyers struggled to win the bid to secure a home. The low interest rates continued to fuel the bidding wars.
~Inflation appeared in mid-2021 and grew troublesomely. The central bank is determined to bring it under control. It does this by aggressively increasing the Federal Reserve’s interest rate. This increases borrowing costs for all to slow things down. Mortgage interest rates also increased as a result.
~The mortgage interest rate increase poured cold water on a red-hot housing market in mid-June 2022. With each subsequent rate increase, the buyers’ purchasing power dropped drastically. A rough rule of thumb is with each 1% increase in rate, the loan amount decreases by 10%. When the rates went from 3% to 6.5-7%, buyers could no longer afford the level of homes they were expecting.
~After seven consecutive rate increases, the buyers’ purchasing power dropped drastically, and demand naturally leveled off. The housing supply is still tight in Central Florida. As buyers struggle with the shock of the new interest rates, sellers struggle with the new normal of their houses sitting on the market without getting multiple offers. With homes sitting on the market longer, prices eased. So far, we see price correction from the level of early 2022, but year-over-year, the prices are still up.
~Buyer and seller have been at a stalemate in the last quarter of 2022. The buyers’ purchasing power decreased. They also fear the prices may drop and don’t want to enter the market prematurely. The sellers, many with significant equity in their homes, are reluctant to drop the price. Also, when they sell a home with a low mortgage, they have to buy their new home at a much higher rate. As a result, many people are sitting on the sideline, or deciding to stay where they are.
~Going forward, we will be watching the push and pull of buyer and seller motivations in 2023. Some factors we know: The desire for homeownership is still high. The affordability is lower now. The Federal Reserve stated that it would continue to increase rates in 2023, albeit in smaller increments. Many believe that the mortgage rates will stay between 6-7%. Once the shock of the new interest rates wears off, and with some help from creative financing options such as short-term or permanent rate buy-downs, buyers will return to the market. We expect more activities in the lower price range because more people can afford them. The higher price range homes will be sold to out-of-towners, cash-buyers unaffected by the interest rates, and move-uppers who can sell their lower-priced homes. The rental market will continue to be tight because would-be buyers that currently cannot buy will continue to rent.
If you are thinking about buying or selling, reach out to us. We will brainstorm with you and provide consultation specific to your situation so you can make the best decision.
January will be an interesting month to watch, as many home sellers list their homes after the holiday season. This increases the supply as buyers tiptoe back into the market. We will continue to report to you market updates throughout 2023. Until then, take care!
~Yien and Alysa Yao
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