2022 has been a transitional year for real estate in Northern California. The buying frenzy of the pandemic era was quelled by soaring interest rates.
Is this an indication of what’s to come in the year ahead?
Here is your 2023 housing market forecast, complete with five things to watch for in the coming year.
1. Low Inventory
The California housing shortage continues. Between geographic barriers to building, high costs of labor and materials, and interrupted supply chains, there have not been enough new homes built to meet the demand of buyers in Northern California. Additionally, more homeowners are opting to age in place rather than downsize, which is keeping existing homes out of the active market.
With higher interest rates and increasing costs of labor and supplies, it is unlikely that new construction will make much of an impact in adding new inventory to the housing market in 2023.
2. Comparatively High Interest Rates
In an effort to curb inflation, the Federal Reserve raised Interest rates from 3.45 percent in January 2022 to 6.90 percent by October 2022. Increasing interest rates mean higher monthly payments and greater interest expenses for home buyers. And the recent rate hikes have deterred some buyers from making the leap to homeowner in 2022.
For 2023, rates are likely to stabilize somewhere between six and eight percent. While this is higher than the three-to-five-percent range we had gotten used to over the last few years, it’s still low compared to the nine percent of the early 1990s and the 16 percent of the early 1980s. It’s important for buyers to remember that you don’t have to lock into your interest rate for the entire term of your loan. You can opt for an adjustable-rate mortgage, which will automatically change with the market, or you can refinance if rates drop in the future.
3. Stabilized Demand
The high interest rates might prevent some buyers from entering the market, but because of the low inventory, there is still steady demand for the available homes. Don’t expect the bidding wars of 2021, but don’t expect a lack of buyer demand either. Northern California is still a highly desirable area, attracting potential buyers from all over the US due to the strong employment market, solid educational institutions, and high quality of life.
4. Longer Time on the Market
In November 2022, the average Alameda County home took 24 days to sell. This indicates that we are returning to the “normal” pre-pandemic market, in which a more balanced supply and demand resulted in a reasonable 21 days on the market for the average home. Homes are still selling quickly, but not so quickly that buyers have to scramble, waive contingencies, and offer far more than asking price. For comparison sake, at the height of the buying frenzy in both 2021 and 2022, homes sold in just 9 days on average.
By the national average of 37 days, homes still sell quickly throughout much of Northern California, particularly the Bay Area. Homes will likely continue to sell quickly, just not as quickly as we have seen in recent years.
5. Lower Prices
Prices have started to dip across much of California. Part of this dip is the normal lull that comes during the winter when fewer buyers are in the market. But in some markets, this dip is an indication that prices had gotten too high, and the market is correcting itself to more reasonable price points.
As demand returns to pre-pandemic levels, prices will likely reflect this stabilized demand by dipping temporarily. If you’re looking to buy, you might be able to get in while prices are temporarily reduced in 2023.
Are You Looking to Buy or Sell in 2023?
If you’re considering selling your home or purchasing a new home (or both!) in 2023, you need an expert real estate agent that understands the changing market and will negotiate aggressively on your behalf to get you the best price and best terms possible. Contact Sequoia Real Estate today for a free consultation with one of our experienced real estate professionals!