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Why Buyers Should Stay in the Game in 2023
Sellers: Prepare for Longer Days on Market in Q4

For Buyers:

When first-time home buyers talk to their parents or grandparents about today’s mortgage rates, they may get a response similar to, “I purchased my first home in the 80’s at [insert range of 10%-18% interest here].” In fact, some carry their high mortgage rate like a badge of honor because it turned out to be a great decision, despite the uncertainties of their time. In their 20s and early 30s, Baby Boomers endured 4 recessions, 4 rounds of high unemployment, and erratic mortgage rates that started from a low of 7% and rose to a peak of 18%. However, those who got in the game where they could, with a long-term mindset, were rewarded and are looked upon as “lucky” to have gotten in when they did.

Flash forward to 2023. While admittedly there is a large swath of buyers priced out of purchasing a home due to mortgage rates between 6.8%-7.5%, there are a number of them who have the means to enter the market but are waiting for mortgage rates to decline. Their mindset is not unlike those buyers who waited for prices to come down when rates were below 3% 2 years ago, and now regret it. Waiting for the perfect home, at the perfect time, at the perfect price, and at the perfect mortgage rate is an exhausting and futile endeavor. The reason is that when all the perfect boxes are checked off, there is a line of competing buyers that make the experience… well ...less perfect.

Jump to September. As Greater Phoenix moves into the last few months of 2023, seasonally this is the best time to be a buyer. Active listings are rising as they typically do in the Arizona Regional MLS, providing more selection. The median sales price is $40,000 below the highest peak of June 2022, and prices are stable for now. These months are typically slower than the Spring, but competing demand for homes is further suppressed by mortgage rates. Thus 41% of sales involve seller-paid closing costs that often include a rate buy-down. Closing cost assistance is one of the first things to go when rates decline and/or buyer competition increases in relation to supply. Since January, the percentage of sales with assistance has dropped from 51% to 41% and the median paid by sellers has dropped from $9,700 to $7,500.

Things aren’t perfect, but 3 out of 4 isn’t bad.

Currently, the median number of days prior to a seller obtaining an accepted offer is 21 days. However, going into the last few months of the year, sellers should allow for an extra week or two as the calendar approaches year-end holidays. Historically, properties that are listed in October are on the market for a median of 2-4 days longer than those listed in September. However, properties listed in late October or early November are typically 10-14 days longer.

Real estate professionals often advise their clients that the first week of active status is the most important in terms of gauging whether a listing is priced appropriately to attract a full-price offer. Analyzing the last 30 days of sales, this advice proves to be true. Properties that accepted contracts within 1 week of list showed 68% of sellers received their original list price or more at closing. At 2 weeks on the market, that measure declines to 53% but is still a majority. By week 3, however, 59% of sellers accepted offers less than their original price, and after 4 weeks on the market, 81% accepted less.

As sellers approach longer marketing times in October, it’s common to see both active listings and price reductions increase. This year is following that expectation and weekly price reductions are on the rise, up 34% since the beginning of July, but still down a whopping 63% from this time last year. Weekly price reductions are expected to continue rising gradually from now until they peak in early November, so sellers planning to list within the next few weeks may want to budget for at least one in their strategy.

Make no mistake though, the market still favors sellers. So far this year, sales prices have appreciated 6-7% over the past 8 months, with 12 fewer days on market compared to last year, and tighter negotiations within just 2% of the last list price on average. Sale prices are expected to continue rising mildly for the next 3 months.

Commentary written by Tina Tamboer, Senior Housing Analyst with The Cromford Report ©2023 Cromford Associates LLC and Tamboer Consulting LLC

The above chart shows us that supply is starting to rise again. The increase was very modest for the first 6 weeks, but last week saw active listings rise over 3.2% to 12,476. This is still a small number (last year we has over 19,000 at this time), but the trend is of psychological importance. Buyers can flex their muscles a little, especially in the areas with the lowest CMI, such as Casa Grande and Queen Creek.

Of course, any major change in mortgage interest rates could set a cat among the pigeons. This uncertainty works both ways, but the 7% level seems to have established itself as the borderline between good and bad sentiment. I am tempted to mention that I bought my first home in 1976 with a variable rate mortgage fixed for the first 5 years at 8.25%. Funnily enough, this is actually lower than the 8.75% I am currently paying for all 3 of my residential loans. These examples are in the UK so of limited relevance, but they do remind us that home-buyers in the USA are very lucky to have 30-year and 15-year fixed rate mortgage rates available to them. Such things rarely exist abroad. Banks don't usually offer them without a huge amount of government intervention in the real estate lending market. This government intervention is abnormally large in the USA, compared with most foreign countries, and has been so ever since the end of the Second World War.

Commentary written by Michael Orr ©2023 Cromford Associates LLC

What Experts Project for the Housing Market Over the Next 5 Years

If you’re planning to buy a home, one thing to consider is what experts project home prices will do in the future and how that might affect your investment. While you may have seen negative news over the past year about home prices, they’re doing far better than expected and are rising across the country. And data shows, experts forecast home prices will keep appreciating.

Experts Project Ongoing Appreciation

Pulsenomics polled over 100 economists, investment strategists, and housing market analysts in the latest quarterly Home Price Expectation Survey (HPES). The results show what the panelists project will happen with home prices over the next five years. Here are those expert forecasts saying home prices will go up every year through 2027 (see graph below):

If you’re someone who was worried home prices would fall because of stories you’ve read online, here’s the big takeaway. Even though home prices vary by local market, experts project prices will continue to rise across the country for years to come. And these numbers indicate the return to more normal home price appreciation.

And while the projected increase in 2024 isn’t as large as 2023, it’s important to recognize home price appreciation is cumulative. In other words, if these experts are correct after your home’s value rises by 3.32% this year, it’ll appreciate by another 2.17% next year. This is a good example of why owning a home is a choice that wins big over time.

What Does This Mean for You?

Once you buy a home, price appreciation raises your home’s value, and that grows your household wealth. To see how a typical home’s value could change in the next few years using the expert projections from the HPES, check out the graph below:

In this example, let’s say you bought a $400,000 home at the beginning of this year. If you factor in the forecast from the HPES, you could potentially accumulate more than $71,000 in household wealth over the next five years.

So, if you’re thinking about whether buying a home is a good choice, remember how it can be a powerful way to grow your wealth in the long run. 

Bottom Line

According to the experts, home prices are expected to grow over the next five years at a more normal pace. If you’re ready to become a homeowner, know that buying today can set you up for long-term success as home values (and your own net worth) grow. Connect with a local real estate agent to start the homebuying process today.