2023 Housing Market Recap
As the year is coming to an end, let's recap what we've seen happen in the real estate market in 2023.
Then... we'll take a look into how 2024 may look.
"2023 was the least affordable home buying year in the least the last 11 years" - Redfin
That pretty much sums it up.
If I look back to this time last year, there were two groups of home buyers. Those taking a 'risk' and buying, and those sitting and waiting. Now, those who bought last winter are sure glad they did.
2023 was a year of higher interest rates AND higher prices. Fueled by the continued lack of inventory as well as looming rate drops.
Buyer affordability has been a topic that many have talked about. Yet, I haven't heard many people talk about what buyers showed they were willing to do to buy a home.
Let me explain what I mean...
Interest rates have hit a peak of mid 8%'s, but for this example, I'll use an 8% interest rate.
Median home prices hit a new record last month. If you missed the last market update, go back and watch it after you finish this. $1.1m was the median home price for November.
Let's use you as an example... Let's say you purchased a median-priced home in OC for $1.1m. Your interest rate would have been 8% (to keep numbers easy).
Note: If you don't like numbers or math (who does), I'll give a summary at the end to simplify as much as possible.
When you purchased that home, you put 20% down payment.
You would have a payment that broke down like this:
A payment of roughly $7,500 for that $1.1m house. This shows that you (the home buyer in this example) are willing to pay $7,500 per month for the median home.
Now let's look at what so many home buyers (maybe you) are waiting for, "rates to come down". Let's say that rates come down to 5%.
How far does that $7,500 payment go? Remember that most home buyers are not paying cash. Affordability comes down to the comfortable down payment and monthly payment, not price.
(What price do you think a $7,500 payment equals at a 5% interest rate? Take a second to give your guess.)
... Using all the same numbers, a $7,500 payment with 20% down payment and a 5% rate comes out to a purchase price of..... $1,450,000.
Yes. A $350,000 difference.
This means that home buyers are willing to push prices another 20-30% higher. If rates came down to 4%, that would take that sale price up to $1,600,00.
Making that $350k difference a $500k difference.
For the record - I'm not saying that prices will jump like this overnight. All I'm sharing is what buyers are willing to spend. Having said that, I wouldn't be surprised to see prices surge when rates come down.
Buyers have shown that they are willing to pay for homes at these higher prices and higher rates. When rates come down, it will allow buyers to afford a higher-priced home. This will increase home prices (over time).
If you want some help talking through your situation, go to the website and click 'Get Started'.
Or you can simply reply to this email, and we'll set up a time to connect.
PPS - This is written about buyers, but this is really for you if you're thinking of selling in 2024.
You need a game plan in place.