2023 Market Outlook 2022 Wrap up

2023 is here, and so is the rain! As we think back to the Summer with its droughts and wildfires, it's hard to not welcome the weather, but enough already! Hopefully we can get more space between our storms in the coming weeks to help fill the reservoirs, replenish the aquifer and offer a bountiful snowpack to take us through the summer, and also so that we can get out to enjoy the Bay Area lifestyle that makes it so great to live here.

2023 Market Outlook What it means for you

   Last year, one factor drove the real estate market more than any other: rising mortgage rates.

   In March 2022, the Federal Reserve began a series of interest rate hikes in an effort to pump the brakes on inflation. The housing market has reacted accordingly. Both demand and price appreciation have tapered. The primary challenge for homebuyers has shifted from availability to affordability. And although this higher-mortgage rate environment has been a painful adjustment for many buyers and sellers, it should ultimately lead to a more stable and balanced real estate market.
   So what can we expect in 2023? Will mortgage rates continue to climb? Will prices fall?  Rates fluctuate all the time. We have a client who is in escrow right now who just locked in a 5.5% APR. While this is one of the more challenging real estate periods to forecast, here’s what several industry experts predict will happen to the U.S. housing market in the coming year.

National Market Dynamics: Sales, Prices, Rates, & Inventory

In 2022, 30-year fixed mortgage rates surged from roughly 3% in January to around 7%. According to Rick Sharga of real estate data company ATTOM, “We’ve never seen rates double in so short a period.”

This year, economists forecast a less dramatic shift.
In an interview with Bankrate, Nadia Evangelou, senior economist for the National Association of Realtors, shares her vision of three possible mortgage rate scenarios:
Inflation continues to surge, forcing the Fed to repeatedly raise interest rates. In that scenario, she predicts that rates could reach as high as 8.5%.
Inflation decelerates and mortgage rates follow suit, averaging 7 to 7.5% for the year.
Rising interest rates trigger a recession, which could ultimately lead mortgage rates to drop closer to 5% by the end of the year.
Realtor.com forecasts something similar to scenario #2 above: “Mortgage rates will average 7.4% in 2023, trickling down to 7.1% by year’s end.” The Mortgage Bankers Association, however, projects something closer to Evangelou’s scenario #3, with the 30-year fixed rate declining steadily throughout the year, averaging 6.2% in Q1 and 5.2% by Q4.

Economists at Fannie Mae fall somewhere in the middle. In a recent press release, they predicted that the U.S. economy will experience a “modest recession” this year. But in their December Housing Forecast, they project that 30-year fixed mortgage rates will only fall by half a point from an average of 6.5% in Q1 to 6.0% in Q4. 

“From our perspective, the good news is that demographics remain favorable for housing, so the sector appears well-positioned to help lead the economy out of what we expect will be a brief recession,” said Fannie Mae Chief Economist Doug Duncan.

What does it mean for you?  Even the experts can’t say for certain where mortgage rates are headed. Instead of trying to ”time the market,” focus instead on buying or selling a home when the time is right for you. There are a variety of mortgage options available that can make a home purchase more affordable, including adjustable rates, points, and buydowns—and keep in mind you can always refinance down the road. We’d be happy to refer you to a trusted mortgage professional who can outline your best options.

Sales Volume will Fall and Inventory will Rise

The market’s balance of power is predicted to shift towards buyers for the first time in years, but first-time buyers are likely to continue to struggle.

It looks like the home-buying frenzy we experienced in recent years is behind us. While the desire to own a home remains strong, higher mortgage rates have made it unaffordable for a large segment of would-be buyers.
 
Many economists expect the number of home sales to continue to decline this year, leading to an increase in listing inventory and days-on-market, or the time it takes to sell a home. Economists at Fannie Mae forecast that total home sales will fall by around 20% this year before rising again by nearly 15% in 2024. National Association of Realtors Chief Economist Lawrence Yun projects a less extreme dip of 7% in 2023 with a rebound of 10% next year.

Realtor.com Chief Economist Danielle Hale foresees something in between. “The deceleration in home sales is likely to continue as high home prices and mortgage rates limit the pool of eligible home buyers. We anticipate that existing home sales will decline another 14.1% in 2023.” She expects this drop in sales to lead to a nearly 23% increase in inventory levels this year, offering more choices for buyers who have struggled to find a home in the past.

However, given the severe lack of housing supply, even with a double-digit increase, the market is expected to remain relatively tight and below pre-pandemic levels. Hale points out, “It’s important to keep historical context in mind. The level of inventory in 2023 is expected to fall roughly 15% short of the 2019 average.”

What does it mean for you?  In this market, experience and local expertise matters. A lot goes into the sale of a home and relocating. Long before the sign goes in the ground, we strategize with our clients on what their goals are, how best to prepare the home, identify where the pops in value are in the buyer's eyes and how to highlight them with design, a sense of quality, staging, professional photos and collateral, high quality marketing / branding, pricing strategy, and more. The process can be daunting, but our clients have found this team indispensable, helping them navigate and execute the process with ease so they can focus on their next life transition. If you or your loved ones are considering selling their home, don't hesitate to give us a call and learn how we can help take the stress out of the process.

Home prices will 
remain relatively stable. 

 Expert's projections vary. Stay tuned to your local market updates

While some economists expect home prices to fall this year, many expect them to remain fairly stable. “For most parts of the country, home prices are holding steady since available inventory is extremely low,” said Yun at a November conference.

Nationally, Yun expects the average median home price to tick up by 1% in 2023, with some markets experiencing greater appreciation and others experiencing declines.  Economists at Fannie Mae offer a similar projection, forecasting a slight decrease in their Home Price Index of about 1.5%, year-over-year.

Other experts foresee a larger fluctuation. Hale expects U.S. home prices to rise by 5.4% this year, while Morgan Stanley is forecasting a 7% drop from the peak in June 2022.
 
Still, many economists agree that a housing market crash like the one we experienced in 2008 is highly unlikely. The factors that caused home prices to plunge during the Great Recession—specifically lax lending standards and a surplus of inventory—aren’t prevalent in our current market. Therefore, home values are expected to remain comparatively stable.

What does it mean for you? It can feel scary to buy a home when there’s uncertainty in the market. However, real estate is a long-term investment that has been shown to appreciate over time. The best bargains are often found in a slower market, like the one we’re experiencing right now. Contact us to discuss your goals and budget. We can help you make an informed decision about the right time to buy.

And if you’re planning to sell this year, you’ll want to chart your path carefully to maximize your profits. Contact us for recommendations and to find out what your home could sell for in today’s market.

We're Here to Guide you

While national real estate forecasts can provide a “big picture” outlook, real estate is local. And as local market experts, we can guide you through the ins and outs of our market and the issues most likely to impact sales and drive home values in your particular neighborhood.

Recently Sold

We are lucky enough to have grabbed the attention of The New York Times with our stunning Mid Century Modern in Lincoln Highlands. 

Read The New York Times Article

Lincoln Highlands

4138 Coolidge Avenue

2 BD   2 BA   1495 SF   
Listed at $995,000
SOLD FOR $1,400,000

Mid Mod, all level w/ Incredible indoor / outdoor flow. Light & breezy bungalow keeps it casual & cool w/California mid-century modern vibes. Distinctive angled roofline, expansive porch & 3-light globe fixture is 1st clue about what lies beyond the front door. Private, single-level indoor/outdoor living throughout. Standout features - generously sized living room w/ large window framing peek-a-boo Bay views & covered patio area off dining room/ kitchen. Both look out to a private grass area w/ mature magnolia tree & flowering delights. Nice wrap-around deck w/ bay views leads to a level landscaped backyard w/a built-in gas BBQ & fridge setup-perfect for entertaining outdoors. Thoughtful 2022 refresh mixes modern elements w/1949 period details. Hardwood flooring, original open corner fireplace, built-in bookshelf & classic George Nelson lights throughout. Retro kitchen keeps it fun w/ a custom tile backsplash, linoleum floor, abundant storage, gas range, all stainless steel appliances, oversized pantry, & bonus workspace. 2 bedrooms each w/ ensuite baths. Sunny private primary bedroom overlooking the yard w/ patio access. Attached garage bonus space. 200 amp panel newer roof, furnace, etc. Minutes to Montclair, Dimond/Laurel, Woodminster, Joaquin Miller Park, & all of Oakland!

Southwest Berkeley

2322 Eighth Street

2 BD   2 BA   1144 SF   $1,125,000

Listed: $959,000 
SOLD 17% over asking

Westbrae

1241 Cedar Street

2 BD   1 BA   0 SF   $1,255,000

Listed $1,089,00
SOLD 15% over asking 

Ivy Hill

720 East 21st Street

2 BD   1 BA   1008 SF   $850,000
Listed $789,999
SOLD 7% over asking

Cragmont

1133 Keith Avenue

3 BD   3 BA   1928 SF   $1,295,000
Listed $1,295,00
SOLD for asking

Coming Soon!

Oakmore
3 bed/2 bath home w/ lower in-law, fantastic deck & cedar hot tub

Montclair
5 bed/3 bath home with lower in-law, great deck and privacy

Lincoln Highlands
4 new detached homes: 1,508-1862 sq. ft 3 bed/ 2.5 bath rooftop decks, private yards

Ivy Hill
2 bed/2 bath top floor condo

West Berkeley
3 new detached homes, 4 bed/3.5 bath, 1,800-2,000 sq ft. private yards

Did you know?

Every time we list a property, Andy Pitarre plants 2 street trees in the neighborhood. This adds beauty to our streetscape and combatting climate change in the course of his work. This solidifies our impression on the planet and our neighborhood.

Andy speaks as "expert" to The New York Times on Gas Stove Alternatives 

In 2019, Berkeley becomes the first city in the United States to ban gas hookups in most new homes and buildings. Dozens of cities in California, including Sacramento and San Francisco, have since followed suit. 

Andrew Pitarre, an Oakland-based Real estate agent for Compass, said that while clients seemed intrigued by induction stoves, the vast majority still preferred gas over electric cooking. New development in the area, which he said was scarce, typically features the higher-end induction surfaces.

At first, "a frown instantly sets on their face when there's no gas," Mr. Pitarre said of clients. "But when they learn about the benefits of induction, it alleviates their concern for most people."

Read New York Times Article

Thanks for reading! 

If you or know someone that is considering buying or selling a home in 2023, contact us now to schedule a free consultation. We’ll work with you to develop an action plan to meet your real estate goals this year.

Andrew Pitarre          DRE#01867911
Mobile: 415-342-9950
Andrew.Pitarre@compass.com

Britnee Underwood   DRE#01933577
BUnderwoodSells@gmail.com

Ali Blesse                  DRE#02092170
Alzira.Carvalho@gmail.com

Maricela Yee             DRE#02194703
MaricelaKLYee@gmail.com

The above references an opinion and is for informational purposes only. It is not intended to be financial, legal, or tax advice. Consult the appropriate professionals for advice regarding your individual needs.
Sources:
1. Forbes -
 https://www.forbes.com/advisor/investing/fed-funds-rate-history/
2. Bankrate -
https://www.bankrate.com/mortgages/will-mortgage-rates-go-up-in-december-2022/
3. Bankrate -
https://www.bankrate.com/real-estate/housing-market-predictions-2023/
4. Realtor.com - 
https://www.realtor.com/news/trends/2023-the-year-of-the-homebuyer-our-bold-predictions-on-home-prices-mortgage-rates-and-more/
5. Mortgage Bankers Association - 
https://www.mba.org/docs/default-source/research-and-forecasts/forecasts/mortgage-finance-forecast-dec-2022.pdf?sfvrsn=b584bf7_1
6. Fannie Mae - 
https://www.fanniemae.com/newsroom/fannie-mae-news/economy-still-expected-enter-and-exit-modest-recession-2023
 7. Fannie Mae -
 https://www.fanniemae.com/media/45801/display
8. National Association of Realtors - 
https://www.nar.realtor/newsroom/nars-lawrence-yun-predicts-us-home-prices-wont-experience-major-decline-could-possibly-rise-slightly
9. Realtor.com -
 https://www.realtor.com/research/2023-national-housing-forecast/
10. The New York Times - 
 https://www.nytimes.com/2022/11/04/realestate/housing-market-interest-rates.html
11. CNBC -
 https://www.cnbc.com/2022/09/28/how-much-higher-rent-will-go-in-2023-according-to-experts.html
12. Federal Reserve Bank of Dallas -
 https://www.dallasfed.org/research/economics/2022/0816

Compass is a real estate broker licensed by the State of California operating under multiple entities. License Numbers 01991628, 1527235, 1527365, 1356742, 1443761, 1997075, 1935359, 1961027, 1842987, 1869607, 1866771, 1527205, 1079009, 1272467. All material is intended for informational purposes only and is compiled from sources deemed reliable but is subject to errors, omissions, changes in price, condition, sale, or withdrawal without notice. No statement is made as to the accuracy of any description or measurements (including square footage). This is not intended to solicit property already listed. No financial or legal advice provided. Equal Housing Opportunity. Photos may be virtually staged or digitally enhanced and may not reflect actual property conditions.