By now you know that 2022 was no walk in the park for the real estate market. Rising mortgage rates, falling stocks and high inflation gave buyers and sellers the blues and brought the doom-and-gloomers out of the woodwork. But the housing bears may be a little too downbeat heading into 2023 given a number of factors supporting conditions for a decent market, if not a good one. It may not feel as euphoric as 2021, but the fact is millions of homebuyers across the country will come to the closing table this year…and live to tell about it.
Here are five reasons we feel positive about the 2023 market.
1. Low Inventory
The sudden drop in demand that occurred when rising mortgage rates forced would-be buyers to the sidelines could have done a number on home prices. However low inventory, which is nearly 33% below pre-pandemic levels, has helped keep prices at or near recent highs. Normally, low inventory wouldn’t be cause for celebration, but in the current environment, it’s one factor that has stabilized the market.
2. ROI Potential
Sellers who think they missed their window of opportunity to achieve peak pricing may not be seeing the forest for the trees. According to S&P/Case-Shiller, median home prices in the Chicago metro are up 28% over pre-pandemic levels, while nationally prices are up 39%. Even if home prices undergo a modest correction this year, most sellers should still enjoy a healthy return on investment.
3. Swift Market Times
Another sign of a healthy market: homes are still selling fast. In December, the average market time across the Chicago metro was just 45 days. Meanwhile, in Chicagoland, homes that required no price changes sold in less than 20 days in each of the last three months of 2022.
4. No Relief In Renting
Mortgage rates have driven the cost of homeownership higher, and as a result many people have turned to the rental market. But what they’ve found, especially in major metros like Chicago, is rents near all-time highs. One has to ask oneself if it’s better to start building equity and enjoying the tax benefits of homeownership now or to keep paying a landlord’s mortgage?
5. The New Normal
While mortgages in the 6% range may be a shock compared to recent years, they’re still a full point below the 50-year average. Slowly but surely, the market is absorbing this new reality. Better yet, the Fed’s inflation fight appears to be working, and as inflation comes down rates should follow, giving today’s buyers the opportunity to refinance. The artificially low rates of the pandemic are history, but many a strong market has ridden on the back of rates in the 5s and 6s.
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Sources: Realtor.com, Dec. 2022 vs. Dec. 2019; S&P/Case-Shiller Home Price Index, Oct. 2022 vs. Jan. 2020; BrokerMetrics/MRED, Chicagoland ALL MLS; Federal Reserve Bank of St. Louis