August 2023 Market Housing Update
The housing market experts made their predictions expecting rates to start decreasing this spring, by summer at the latest. Instead, the rates continued to climb. In Bergen County, this was coupled with record-high sale prices due to the lack of inventory.
This has finally led to a market shift with home prices SLOWLY starting to decline. There are a couple of factors that will determine if we have hit our peak or if this is just a slight dip in long-term trends.
The housing market experts made their predictions expecting rates to start decreasing this spring, by summer at the latest. Instead, the rates continued to climb. In Bergen County, this was coupled with record-high sale prices due to the lack of inventory.
This has finally led to a market shift with home prices SLOWLY starting to decline. There are a couple of factors that will determine if we have our peak or if this is just a slight dip in long-term trends.
Below is a chart of Days on Market (DOM), the average times homes at each price point were listed prior to going into Attorney Review (AR). Historically, longer DOM are correlated with lower price points. While data on sale prices is going to be 30-90 days delayed, I am confident that we will see a dip in sale prices for homes that were listed in July, specifically late July.
Have we peaked or is this a dip in a long term trend?
I want to clarify that the future of the housing market (assuming no major world event such as a war or global pandemic) is dependent on the TIMING of two major factors. I will explain how these factors can either increase or decrease home values based on when they happen.
LOWER INTEREST RATES
We are in gridlock because those who purchased or refinanced at 2.5% -3.5% are unwilling to list their current home and purchase a new one at 7%. This is a major contributor to the lack of inventory.
The general consensus among experts is that when the rates come down we will go back into a real estate frenzy. Buyers will have more per month and with less going to the bank more will go to the seller in the form of higher home prices like in 2020 and 2021.
I had believed this would be the case too because I, like many, assumed that we would SLOWLY see interest rates decline. So if rates had started to come down in late spring/summer of 2023, I believe home values would have increased. However that’s not the case, the rates kept going up and homes started to become unaffordable, so more buyers stopped looking, which impacted supply/demand, causing a market shift.
If rates come down slowly starting in winter 2023, I think we will see home prices start to rise again. If they drop quickly, specifically during spring 2024, I think we will see a plethora of listings which will relieve the bottlenecking causing the housing market to stabilize.
BANK-OWNED/ REO PROPERTIES
During Covid there was a moratorium on foreclosures and evictions. For a year evictions were on hold, once they were legally allowed there was a backlog in the courts. As a result, we saw rents skyrocket due to a lack of inventory. Tenants making 3x the rent with amazing credit scores were forced into bidding wars, paying hundreds above asking each month! Fast forward a year, and many evictions later, and the rental market has experienced a slight decrease in average rent, and gone are the days of bidding wars.
Right now builders are overpaying for older homes that really only need cosmetic renovations, keeping them out of the hands of would-be owner-occupants who can’t afford something more updated. When REOs become available again, not only will it add to the overall market inventory, but after sitting empty for 2+ years these homes are typically unlivable and priced accordingly. As builders opt for those properties it will leave the more expensive older homes for buyers who are willing to put in a little TLC.
Once again, timing matters. If the REOs hit the market while rates are high, they will sell for more money because of the lack of inventory. However if they become available as rates are coming down (lower rates mean more inventory), especially if the rates drop quickly, the REOs will have less value due to the concept of supply and demand.