2023 Real Estate Market Predictions - Williamson County

--- Return to Erika's Website ---

You're hard pressed to find many in this Real Estate market who aren't ready to wave buh-bye to 2022.

Even the Buyers who have recently landed homes with more time, less competition and way better terms are painfully aware that they're paying hundreds of thousands of dollars more for a home than they would have just a couple years earlier. And regardless of whether these values are here to stay, that hurts.

There are a lot of questions swirling out there right now - particularly "what's next?" And no one has a crystal ball to answer this. Though we do have a few signs pointing the way.

The major slowdown we're experiencing in Real Estate right now is, in my opinion, a form of analysis paralysis by Buyers sprinkled with affordability challenges. 

Decreasing affordability can be mostly attributed to high prices and interest rates. But the even bigger -- and unknown -- factor is measuring and timing the market. That's what a lot of Buyers are trying to do right now. And whether time is working in their favor is yet to be seen.

The Fear

To put it bluntly, Buyers are afraid that they'll buy now then home values will tank. I don't blame them! After living through the Great Recession, we all know that anything can happen.

Sellers fear they're going to lose the value they gained so quickly in their homes. So if Buyers aren't buying, Sellers have decided they won't sell.

These fear factors are a large part of what's driving our market right now -- and leaving behind bread crumbs for what's likely to happen in the not-so-far future.

Gathering the Bread Crumbs

• Sales declines are different from price declines. You wouldn't believe how many people read headlines about sales declines and think that means the market is crashing. Sales declines is referring to the number of homes sold. Prices are obviously referring to home sales prices. While sales have declined 9 months in a row nationwide, sales prices continue to go up (though not necessarily in every market). This is important to know.
• Local Sales Prices: At this point, our median home sales prices here in Williamson County continue to increase -- by 23% year-to-year, with the second-largest month-to-month increase in sales prices happening from October to November (December's numbers are not yet out because the month is not yet over). Nationwide, we saw a 9.5% increase in prices year-to-year in 2022. Predictions are all over the map on whether we will see national price increases or declines in 2023. National Association of Realtors Chief Economist Lawrence Yun is predicting prices stay flat -- no increase or decrease. Moody Analytics is predicting a 10% decrease in sales prices. Redfin is predicting a 4% decrease. Realtor.com predicting a 5.4% increase in sales prices. Williamson County usually tracks better than the nationwide averages. But even if we drop as much as 7% next year from where we are right now, we're basically back to October 2022 pricing. (see chart below)
  
• Foreclosures: Considering the point above, the likelihood that any homeowners in Williamson County will lose much value in their homes is pretty slim. And by "much," I mean enough to be underwater. We saw a lot of that in the Great Recession -- people owing more on their homes than they were worth. Of all the predictions out there, not one is suggesting home values will dip to the extreme point where they're below what most people owe on them. And because of this, Foreclosures are expected to remain in record low territory. Any homeowners who begin to struggle with making their mortgage payments, whether due to job loss, medical issues or any other circumstance, have more options now than they did in the Great Recession due to all the equity they have in their homes right now. Because their homes are worth more than they likely owe on them, homeowners can sell and make a profit rather than give up and give away their homes.
• New Construction: New home sales are up for 2 months in a row, following dips through September. And on top of that, new home starts are down. This could create a squeeze in new home inventory over the next couple of months with fewer homes on the market and fewer homes coming to market. And speaking of fewer homes coming to market, this is an indicator Warren Buffett apparently puts a lot of stock in (hint: supply & demand).

• Fewer Existing Homes Selling: To squeeze our supply even more in 2023, it's expected that the only people who will be selling their existing homes will be those who *have to* move. The reason is because so many homeowners locked in the record-low interest rates from the past year and therefore have very little incentive to move into a larger interest rate mortgage.
• Mortgage applications: Meanwhile, we've seen an increase or leveling off of applications for new mortgages in 7 of the 8 most recent weeks, signaling more Buyers will be entering the market soon. This is a dramatic difference from the decreases we've experienced through Summer and Fall. Mortgage application levels are typically a leading indicator, giving us an idea of upcoming activity in the market. A decrease indicates fewer Buyers entering the market, and therefore fewer homes going Under Contract. An increase means we can expect more homes going Under Contract in the coming weeks (if there are homes available, that is. Regardless the demand will be there).
• Mortgage Interest Rates: As mentioned above, this is pretty much the most fluctuating factor in affordability right now. And it appears that it's swinging in Buyers' favor lately with mortgage Interest Rates retreating from their 2022 highs reached in October. Rates have gone from above-7% to the mid/low-6% range in just a matter of a month. And while they are known to go up and down almost daily, the overall trend looks like we're headed downward. Yun believes we should get down to the mid-5% range in 2023, and while that'll really loosen up our market, that'll likely be as low as our rates go for the foreseeable future. The 4% and lower interest rates are likely gone for good. But even a percentage drop on a mortgage could save Buyers hundreds of dollars per month on payments. And this is likely the correlation to why we're seeing an increase in mortgage applications. (below graph from Mortgage News Daily)

• The Great Reshuffling: While the intensity of moving to destinations more desirable or more affordable has lessened, Redfin expects Americans will continue to relocate in 2023, above pre-pandemic levels. For perspective, here are the levels of relocations we're looking at:
• 2023 = 20%
• 2022 = 24%
• Pre-Pandemic = 18%

(The question is whether *our* local area is still desirable and affordable enough 

for continued demand here.)

• Pent-Up Demand: Generally speaking, because Buyers have sat on the fence for about a half-year, and as a result, Sellers have too, both sides are going to want to make moves soon. All we're waiting on is Buyer confidence and affordability to return. It looks like that will be in the form of lower interest rates and economic stability once The Fed eases off the gas, as it's already begun. The biggest unknown factor is WHEN. Will the loosened market come in the next month? Or the next quarter? Regardless, many speculations are pointing to soon.

Keep on Your Radar

Perspective is everything. In just a few months time, our Real Estate market has become almost unrecognizable, and media outlets have eaten every crazy detail like it's cat nip. 

According to Real Estate Tech Strategist Mike DelPrete, the nationwide market is down, but not as bad as it seems. "Media headlines focusing on a pending US housing market crash are based on limited data that's skewed by the outsized 2021 numbers."

Another important factor is the difference between each local market. Six months ago, you could make blanket statements about what's happening in the housing market nationwide and it would apply to almost every local market. Now, each market needs its own data and the numbers all tell a different story from city to city and county to county. Lean on local sources.

Perhaps most important: Don't time the market. Just like stocks, Real Estate is almost as volatile because Wall Street has started buying so many houses. Because of this, do what's best for you and your family -- regardless of timing-- in light of the facts you have, where you live and the situation you're in. There is no one-size-fits-all strategy in this market.. just an impending flurry of activity that'll make this foggy crystal ball seem more like a snow globe by the time Spring rolls around.

As you can probably tell, I don't think the world is ending. It's just another day in Real Estate! The only thing that really changes as the market shifts is strategy.

--- Return to Erika's Website ---

Need a plan tailored to your needs? Reach out! I'm a Franklin resident and a Multi-Platinum Award-Winning Williamson County REALTOR ranking in the top 1.5% of agents in Williamson County. I am a Million-Dollar GUILD Member of the Luxury Home Marketing Institute, my market insights are regularly featured in broadcast media, and my success planted me on the front page of a December 2021 Nashville-area Magazine. But most importantly, I specialize in helping my friends and neighbors buy and sell homes.