2023 will be remembered as one of the hardest years in the real estate market. Across the country, home sales have fallen to levels seen 2008 OR 1995, an 18% decline from the previous lower year. It has been a somewhat surprising trend, especially when New Home Sales Up 4.5%, and are on track for one of their best years since 2008. In fact, housing starts are moving in the complete opposite direction and the construction industry is trending back to sustainable levels.
While housing starts are still below average (green line), the trend for new homes it rapidly outpacing the trend of existing home sales. The key challenge for many markets is an ever-shrinking level of inventory for sale, at levels about half of what we saw in 2017.
Among the bright spots for 2023, has been an increase in multi-family construction nationwide that appears to be easing rental increases.
While Official Governmental data shows rents are at roughly 6.8% – the private sector (unofficial) is reporting rent increases have fallen to roughly 1%. NAR Forecaster Lawrence Yun says that the private sector has more up-to-date data than government channels, indicating the official reporting of rent increases is expected to reveal rent growth is softening. This data is critical to lowering the Consumer Price Index (CPI). Something the Feds have indicated is critical to lowering interest rates.
Yun believes key market factors are all pointing to a far better year ahead. His predictions:
One key challenge in the marketplace will be to first-time home buyers. With each percentage point that interest rates fall, more and more buyers are now qualified, thus increasing competition for entry-level or workforce housing.
While home prices have seen their great increase in recent years, Yun believes prices will continue to rise, especially in areas that haven’t seen the same level of increase as their neighboring states.
For example, while Washington State saw a 43.8% increase in Home Price Appreciation in the past three years, that number has been even higher in other Western States such as Idaho, Montana, Utah and New Mexico. The median home price on the West Coast (excluding large markets such as Seattle and San Francisco) is now $560,000. By comparison, the median home price in Spokane County for November 2023 is $407,400. Washington State’s median home price is now $602,000. (source: Redfin)
So, if Lawrence Yun is right, 2024 looks to be brighter than the year we’re completing. Brighter days are just ahead.