The fourth quarter slump is nothing new for the real estate market. However, people all over the U.S. are still purchasing homes – it’s just taking them a little longer to sell and, due to increased interest rates, is costing them a little more.
Interest rates were the elephant in the room that just kept getting bigger and bigger. The effective federal funds rate was under 1% in January of 2022 and by the end of the year, the rate fluctuated between 4.25% and 4.50%. These increases marked the Fed’s aggressive attempt to bring down inflation, and its approach appears to be working, but it’s still resulted in ballooning mortgage rates for borrowers.
There’s evidence that the housing market may be returning some sense of normalcy in these post-pandemic times, but there was still plenty of noteworthy Q4 activity to take a look at.
The Median Sold Price
The median home price for Q4 was $378,700, which was a five percent decrease over the median price in Q3. This decline has played out in the U.S. since June, when the typical home price hit the 2022 high of $420,900. Each market in the country saw single-family housing price reductions, with the year-over-year decrease being most pronounced in the West, where home prices have decreased over 24 percent. The South and the Midwest were tied for the smallest declines at 15 percent.
However, looking at year-over-year trends, home prices are still holding up. Comparing full calendar years, the median price for a single-family home in 2022 was $392,600, as compared to $357,100 in 2021. Home prices jumped a considerable 10 percent from year-to-year, which is good news for sellers, even if the gains are smaller than they’ve become accustomed to seeing recently.
Number of Homes Sold
Home sales decreased in Q4 of 2022 across the country. With 4,480,000 homes sold, 2022 was the first year since 2019 that the number of existing single-family homes sold dipped below five million. The number of homes sold in total for 2021 was 5,413,000, which means that 2022 posted a 17 percent decline year-over-year.
The Northeast has been losing residents at a fairly accelerated clip for the past few years, and that trend persisted in 2022. States including New York, Pennsylvania, and Massachusetts were some of the biggest losers, and this exodus has largely been fueled by buyers fleeing high-density, high-cost areas.
The number of home sales was buoyed by activity in the South and Midwest. The pandemic ushered in the remote work revolution in the spring of 2020, and now nearly three years later, it seems to have stuck for the most part. Workers are no longer tied to their offices and they’re still using their newfound freedom to purchase homes in lower cost of living areas with more space. Places such as Georgia and South Dakota have seen a significant population uptick thanks to these ‘digital nomads’ planting roots.
Number of Days on Market
Homes spent longer on the market in the U.S. for the fourth quarter. From October through December, the median time on the market consistently exceeded three weeks, peaking at 26 days in December. Unsurprisingly, the higher the listing price, the longer the home took to sell.
Homes in the $100K – $250K range sold the fastest, spending a median time of 16 days on the market for Q4. Moving up to $250K – $500K, the time increased to 20 days. Finally, $750K – $1M clocked in at 22 days. The outlier to this rule, however, were homes in the $0 – $100K range, which took a median time of 23 days to sell.
All eyes were on the Federal Reserve for most of the year as economists, banks, and consumers alike watched just how high rates would climb. The Federal Reserve raised the federal funds rate seven times in its effort to tamp down the inflation that’s been running rampant since the start of the pandemic. By November of 2022, the Fed had hiked rates by a 75 point basis four consecutive times.
These increases drove up the costs of borrowing for banks, and consumers also took the hit by extension. 30-year fixed mortgage rates hovered above six percent for the duration of the fourth quarter of 2022. Rates have nearly doubled year-over-year, effectively cutting prospective homeowners’ buying power in half and making them hesitant to pick up a mortgage.
2023 Market Outlook
The housing market is poised to continue its slowdown into 2023. The number of homes sold as well as the median sold price will likely decline further as both demand and inventory continue to return to balance throughout the year.
Many experts are predicting several more interest rate hikes in 2023, albeit at a slower pace. Fortunately, the interest rate pain may only last through the end of Q2. It’s widely believed that mortgage rates will begin to come down by the second half of 2023, potentially to as low as 5.25 percent for 30-year fixed rate mortgages. This could spur some hold-outs to take advantage of the lower rates and take the leap into homeownership.
Inventory will also continue to be a challenge in 2023 due to a combination of fewer new builds and fewer current homeowners choosing to list their homes.
As the housing market begins to stabilize after a volatile few years, buyers can look forward to mortgage rates declining, and sellers may be on track to capture a little more appreciation in their homes through 2023.No comments found.