Nerdwallet conducted a survey recently and found that most Americans are wildly misinformed about the state of the real estate market. This is why some of my buyer-clients are shocked when they find out they are in a multiple offer situation or they don’t understand why the seller did not accept their low-ball offer.
Here’s how the 2023 real estate market is kicking off in January for the Olympia, WA area and tips on how to navigate the market if you are a buyer or a seller.
What to Watch for in 2023
The two “I”s that we are keeping an “eye” on for 2023 are Interest Rates and Inventory. These are the two driving factors that will determine the pace of the market.
I say this because the only reason why the last half of 2022 cooled off a bit was because interest rates went up dramatically. There were plenty of buyers ready to buy.
Last spring, the national average for a 30-year mortgage was 3.76% and then just eight months later, rates jumped to their peak of 7.08% last November.
Buyers paused, rightly so, because they either were priced out of the market or they decided to wait, hoping interest rates would go down.
If interest rates didn’t spike, all of 2022 would have been an all-gas-no-brakes kind of year. But because of the higher interest rates, the competition eased for buyers and inventory levels crept up.
Speaking of inventory, inventory levels rose to about 2 months of supply for the last half of 2022 compared to 0.78 months supply for the first half of the year. Considering a balanced market is 4-6 months of supply, the market remains in a seller’s market.
Everyone was Duped
Buyers, sellers, agents, the media – all felt this change in pace and were quick to say the market crashed and switched to a buyer’s market because buyers found that they were not caught up in a bidding war; they could conduct a home inspection and not be compelled to waive that; and some found they could even negotiate the sales price and other terms.
Sellers were confused and wondered where their fifty offers were.
The only thing that changed was the interest rate and that affected the pace of the market because there are still a lot of buyers looking to make a move.
To be clear, we are not in a buyer’s market. With interest rates coming down a point or two from the peak, buyers are back and the 2023 market is heating up.
Inflation and the Job Market
I should add another “I” to the watchlist and that is inflation. The good news is inflation is moderating, which is why we are seeing a decline in interest rates.
The other game-changer to the market will be if the job market goes off the rails. But for now, if everything remains steady, lower interest rates will be the key to heating up the market again.
Looking to Buy a Home in 2023?
Buyers, here’s your playbook for buying a home in early 2023.
If you are getting a mortgage, use a local lender.
I feel I am a broken record on this topic but just to say it again, the financing of your new home is complicated and is the most important aspect of your home-buying process. Buyers get fixated on the rate and the cost of the loan. Yes, that is important but you may not even have a chance to get the home of your dreams if you are using a lender that either has a very bad reputation in the real estate community or if it is an out-of-state lender.
I am working with a buyer currently who is submitting an offer on a home that has been on the market for quite some time and there is no competition. But we are having a hard time coming to an agreement because of the buyer’s lender choice. The sellers would like my buyers to get approved with a trusted local lender just to make sure they are approved because they don’t know this other lender.
What buyers forget is that their lending choice also really affects the seller because the seller is taking their home off the market, waiting for the buyer to perform. All sellers want to make sure your lender has done their job and has fully approved you so there are no surprises.
A local lender not only has the knowledge of the area, the local agents, the local practices, and how to work with the local escrow companies, but is a lender that can get your offer accepted and get you successfully closed. A local lender has more skin in the game because they know their business will suffer if they don’t perform because the local agents will stop referring clients to them. It’s to your benefit to use a local lender. Contact me for my go-to lenders.
Understand the market.
Please don’t be that guy asking if the seller will accept 45% off the list price. That expectation is not based on reality. For some listings, you may have an opportunity to negotiate a lower price with the seller – maybe 2-3% off the price but it depends upon the circumstances. For other listings, you may be in a bidding war paying over the asking price. So far this month, 38% of our transactions have had multiple offers. And this is January! I predict the competition will increase in the coming months.
Be prepared to pay for your own closing costs.
For some homes, you may be able to negotiate with the seller to pay some or all of your closing costs. Sellers are already paying about 8% in closing costs while your costs are 2-3%, so again, understand the expectation that a seller may not want to cover your closing costs, too.
Be able to make decisions quickly.
The market’s pace is picking up. You may not have a day to think about it. Some properties will go fast and the seller may accept the first offer they receive.
Looking to Sell this Year?
Price accordingly for the current market, not what the market was or what you’d like it to be.
Pricing is difficult but the market will tell you if you are not priced right. Buyers will ignore overpriced properties.
Most sellers have achieved record equity. In fact, over 98% of our sellers have positive equity. And the equity gains achieved in 2021 are still there for sellers. Although the 20% annual gains are in the past, home prices are up 9.2% to a median sales price of $500,000. Our history has annual gains of around 5-6% so we are still above average.
Clean, prepack, and do repairs.
Buyers will be picky. It will be in your long-term interest to clean your home, prepack to declutter the home, and take care of repairs and deferred maintenance. You will achieve a faster sale at a higher price and will attract more buyers. Plus with repairs taken care of, you can feel confident that a buyer’s home inspection will go smoothly and will result in closing successfully instead of the buyer terminating.
You may not get 50 offers on your home and that’s ok.
You just need one qualified buyer. Quality, in this case, will be more important than quantity.
Real Estate and Wealth
Finally, real estate has proven to be a worthwhile purchase. Since 1986, there have been only 5 years where gains achieved were below 0 percent. The other 32 years have produced gains for sellers.
If real estate is in your future, contact me today! I’m here to work with you whether you are a buyer or a seller in Thurston County. Next week, I’ll have more stats to see how January is kicking off the new year.
Unless otherwise noted, statistics compiled by Coldwell Banker Evergreen Olympic Realty and/or Francine Viola from NWMLS data. Statistics not published or compiled by NWMLS. Unless otherwise noted, statistics based on our own proprietary market study. Information and statistics derived from NWMLS.