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“What will happen to housing prices in 2023?” and “Should I wait for the market to crash to buy a home?” The short answer is, I can’t predict the future, but I wouldn’t wait. The long answer is a little more complicated and requires a closer look at what happened during the last housing crisis and what’s impacting the market right now.
Starting with housing prices, I looked at forecasts from 7 different entities, including realtor.com, Freddie Mac and Fannie Mae. These predictions range from housing price growth of 5.4%, to a housing price decline of 5.1%, which equates to an average growth rate of 0.1%. My biggest takeaways are that no one agrees on exactly what will happen (because no one knows for sure), but also, no one is predicting a crash! The most likely scenario is a combination of slight gains and losses across the country, varied by city, state and even neighborhood. Real Estate is hyper local, which is also what makes it so important to work with a local expert. What’s happening in California, Idaho, Austin or Denver, doesn’t necessarily relate to what is happening in Portland. Right now, in the greater Portland Metro area, I am seeing that the continued low inventory is keeping prices stable, and in some cases, we are seeing prices start to rise again. This is especially true in some of the highly sought after neighborhoods, suburbs and vacation home markets such as Multnomah Village, Cedar Mill, Orenco Station, Lake Oswego, Beaverton, Government Camp and the Oregon Coast.
Much of what will happen with Real Estate this year also depends on 2 key factors, and that’s inflation and it’s impact on mortgage rates. Mortgage rates rose dramatically in 2022 and that was due to the federal reserve actions to try and bring inflation down. Those rising rates absolutely shocked the Real Estate world and slowed much of the frenzied activity of the last few years to a halt during last half of the year. While there are signs inflation is starting to cool, where it goes from here depends on the feds ability to get inflation under control. If inflation continues to fall, as it has lately, mortgage rates will fall too. Right now, interest rates are lower than they have been in 6-8 months and we are already seeing buyers come back into the market in droves. I would, however, continue to look to inflation and mortgage rates as key indicators and I would also expect continued volatility with rates.
The second topic I’d like to address is this notion that we are headed towards a market crash or housing crisis. As someone who also lived through that time, I understand the concern, but current data shows today’s market is nothing like it was before the housing crash in 2008.
For one, much of what lead to the great recession was a lack of financial regulations and fraudulent behavior across the lending industry. People could buy a home without a job, terrible credit scores, no down payment, no proof of assets, nothing. Since they didn’t have to put any money down, they had no skin in the game, and were able to just walk away from their homes with little to no consequence. This lead to massive foreclosures, inventory skyrocketed, and the market crashed. Today, the mortgage industry is heavily regulated to prevent a scenario like this from happening again. Home buyers must have good credit, a down payment, solid work history and a job, and the lenders must prove all of this. Thanks to these improved lending practices and years of sustained price growth, home owners today have record levels of equity. This equity means if someone loses a job, has a medical issue, or needs to move, they can almost certainly sell their home without the need for foreclosure. This is why even with the moratoriums and stays on foreclosure through COVID, there will not be a wave of foreclosures coming. Yes, foreclosures are up over the last few years, and will continue to increase over the next year but they are still near record lows. There were only about 88,000 foreclosures in 2022 compared to 2 Million during the peak of the great recession. So not nearly enough to cause a sharp housing decline or market crash.
Second, Real Estate is all about supply and demand and we still have a long term inventory problem with no relief in sight. Even with the market slow down we felt last Fall, our inventory levels in Portland are still hovering around 2.3 months of supply. As a comparison, 6 months of inventory is considered a balanced market and back in 2008, we ended the year with an astounding 19.2 months of supply. So at the peak of the great recession we had about 8x as much inventory as we have today. We know we aren’t getting a wave of inventory from Foreclosures and we know we don’t have enough new homes to satisfy the demand. We can actually tie much of this long term lack of inventory to the great recession, when many builders went out of business and new construction starts screeched to a halt. It has taken years for new construction to ramp back up again, and it’s still not enough to solve the inventory issue.
In my next blog I will expand on WHY there are is so much demand (hint, Millennials and Boomers) and how they will continue to impact the Real Estate market in the upcoming years.
If you are curious to learn more, have a home to sell, want to buy your first home or an investment, give me a call 503-784-8097.
