As we look ahead to the 2023 real estate market, we all turn to the experts to get a feel for what the year will bring. While the experts are not always correct, one expert I do respect is Dr. Lawrence Yun, NAR's Chief Economist.
In a recent interview, Dr. Yun shared his perspective on the market and discussed strong buyer demand and stubbornly low inventory.
From a home seller's perspective, it may not seem that inventory levels are low. The real estate market had moved so quickly over the past couple of years that the relatively slower pace of the market has the psychological effect of making us feel as if there are too many houses on the market. With limited choices on the market, buyers don't buy as quickly and those sellers who could decide to sell don't know what they'd buy, and so they delay selling.
To help bring low inventory into perspective, I'll use some charts that I discussed with a fellow real estate agent, Teri Denis from Barrington, IL regarding the inventory levels for available homes to purchase in Barrington, IL:
This is a four-year look at overall number of homes for sale (light green) and closed sales (dark green) in Barrington IL. It encapsulates the lower inventory levels referenced by Dr. Yun in his discussion. Those light green bars? They represent how many options the buyers have in the market. While our sales are more in line with 2019 or 2018, buyers at that time had more choices in the market. The above chart is an overall view of the market, the charts will change as more parameters (i.e., price range, size) are added.
How did inventory in place in 2018 and 2019 deplete so significantly? In a typical real estate cycle enough buyers are purchasing homes and enough sellers are putting their home on the market to keep inventory levels stable. In 2020 many more buyers entered the market and a lot of the activity we saw was driven by emotion of YOLO or just plain "it's time to buy." There was so much activity that even though many sellers put their homes on the market, it wasn't enough to offset buyer activity.
New listings in the market typically come from:
Owners who Must Sell: Approximately 6%-7% of the population must sell on an annual basis. This is often related to a major life change. This group will sell during the course of the year and accounts for some of the available inventory.
New Builds: Homebuilders add to the housing inventory. There's some concern that many states had not built at a level that sustained the coming demand (while we were waiting for the Millennial buyer to age into buying range). This was primarily a result of the housing recession, and a result of the builders waiting for demand to increase.
Owners who Want to sell: There's always a group of sellers who will want to sell and are ready to move up or move down or relocate, not related to a life change. This group is quieter now as they search for appropriate home to purchase and debate whether or not they want to make the move. Many are comfortable with their current interest rate and while their current value of their home is probably stable, they will also be buying higher than they thought.
Owners who Can sell: very similar to want to sell, these owners are in the position to have some flexibility with their home sale; this can include investors and may include those sellers who can help with interest rate buy-downs.
2023 will probably look a lot like the 2018 and 2019 markets from a pending sales and closed sales perspective. Those were good markets. It will be important for builders to offer enough housing options to free up resale property sales. If you have decided to be IN the real estate market in 2023, be patient and be ready to move; stay focused on the market.
There'll be a happy home out there waiting for you!
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