January 2023 Market Update

A More Balanced Market in 2023

What happened yesterday has more bearing on today than what happened five years ago, so we’re shortening our look back window to get a better understanding of what’s to come. This isn’t to say we can’t use history or that it should be dismissed entirely; rather, the pandemic set in motion a series of events that led to a different housing market, a different overall economy, and a different world when compared to pre-pandemic times. So, as many do in the new year, we reflect on the last year and envision what’s to come.

• January 2022 - June 2022: The last true sales spike occurred during the first quarter of 2022, which drove home prices up 5%. Sales began to slow, as did price growth. Home prices reached an all-time high in June 2022, increasing 42% since June 2020, which was the sharpest and quickest rise in home prices ever recorded. By the end of June, mortgage rates had risen 2.6% in 2022, which drastically decreased affordability.
  
• July 2022 - December 2022: During the second half of 2022, the housing market cooled significantly. Demand softened for several key reasons: higher interest rates, a return to seasonal market trends where prices increase in the first half of the year and decrease slightly in the second, and mean-reversion (about a million homes were sold above the average in 2021, and about a million fewer than the average were sold in 2022). We closed the year with high and volatile mortgage rates, hitting 20-year highs in October and November. 

The economic factors are mixed, suggesting that the market is balancing out. Demand had nowhere to go but down after the rise in interest rates and the buying frenzy between 2020 and 2021. (The average homeowner stays in their home for about eight years.) The supply of homes is still about 20% below pre-pandemic levels, so the drop in demand brought the market closer to balance. In 2023, we expect a return to seasonal trends — price and inventory growth in the first half of the year and contraction in the back half — but at relatively lower levels, meaning fewer new listings and fewer sales overall.

Local Lowdown

As we mentioned above, the market has cooled for both buyers and sellers, largely because of higher interest rates. As we enter the new year, the market feels familiar — but from the era before 2020. Prices will most likely increase in 2023, but at a more modest rate of around 5-6%, which makes for a much healthier market than the volatile price movements that occurred over the past three years. Single-family home prices contracted in the second half of 2022, landing near 2020 prices in Alameda and Contra Costa. When we look back further to Q4 2019, single-family home prices have increased 27% in Alameda and Contra Costa. Without any signs of interest rates dropping, we’re entering a stage of slower, longer-term growth.

More new listings should come to the market in the first quarter. We are already seeing buyers eager to take advantage of new inventory hitting the market. Well prepared and well priced homes have even been receiving multiple offers in our area. Despite the changing economic environment, the market will still favor sellers for at least the first quarter of 2023. 

As always, Arrive Real Estate Group remains committed to helping our clients achieve their current and future real estate goals. Our team of experienced professionals are happy to discuss the information we’ve shared in this newsletter. We welcome you to contact us with any questions about the current market or to request an evaluation of your home.