February 2023 Market Update - Good News!!

Based on the latest economic data and real-world experiences of McEnery Residential’s clients and agents, this month’s market update can be summarized very simply:

Don’t Believe the Headlines!!!

We’ll get into the data, of course, but here are the high points:

• People still need to buy and sell homes, and they are contacting trusted agents to help them. Life still happens. Family & job changes are still happening, and those changes often entail making a move.
• Inventory remains very low, which is helping sellers avoid the steep price declines one might expect based on media reports.
• Buyers have capitulated on higher interest rates, which actually came down last month! Buyers now understand the reality that the super-low rates of the last 10 years were unusual. Rates like 5%-7% are much more normal, and maybe even still a bit low, historically.
• The mania of 2020 & 2021 is over. We are seeing less intense competition, and buyers are sometimes taking their time to make offers. Buyers are getting a little pickier about property condition. The few buyers who think they have plenty of time and think now is the time to get a deal because everything is on sale – can be disappointed when the serious buyers beat them to the great home.
• We are still seeing multiple offers on good, well-priced, and well-marketed properties!

Mortgage and Economics Update

We recently attended a (virtual) presentation by the leadership team of a regional bank. The speaker was Bill Bodnar, a mortgage expert at Tabrasa. Bodnar shared some very positive macroeconomic data. I enjoyed the presentation as I felt he was studying facts, thinking for himself, and explaining why the real data is not as scary as the headlines.

First, the bond market is keeping longer-term rates lower than shorter-term rates. This means that the markets feel that current rates are too high, and indeed the Fed has now slowed the rate of interest rate increases. Pundits can differ on projections and conclusions, but it seems that rates will continue coming down over the long term. Disinflation is here!

The Fed recently stated that they are, “seeing effects of policy on demand in housing, but will take time for full effects to be realized.” Bodnar stated that the demand for housing effects has already happened, and the worst is behind us. We agree.

The labor market remains very tight. Data that came out in early February (after the presentation we attended) showed that unemployment had not been lower at any time since 1969. Bodnar stated plainly, “We can’t have a recession if everyone is employed…a soft landing may actually happen!”

Remember: The job market drives real estate markets. Without a job, you can’t buy a house. Unemployment is super low, and inflation is slowing down.

Not looking to move? Want to renovate but it’s too expensive? Well, it’s still not cheap, but materials price growth slowed by 60% in 2022.

Real estate sales activity is picking up, too. We are seeing more and more market participants transact every week, and in December, the NAR reported that closed sales increased for the first time in six months.

Key takeaways from the latest New Orleans (70115) data:

• Inventory peaked in October and started coming down again. This coincides with a more-typical seasonal slowdown: January is usually one of the slowest months of the year. Locals understand that many sellers hold off until after Mardi Gras to list their homes, so we expect more inventory to become available next month!

Price it Right – Sell it Faster

• Not unexpectedly, sellers and their agents may be slow to pick up on the fact that the market is changing. Of course, we aren’t foreseeing a housing crash anytime soon, as there is not a current glut of inventory and buyers are still out there.
• The data also indicates that sellers’ pricing strategies are changing. A year ago, sellers wanted more money than the market data would indicate. Buyers were armed with low-interest loans and few homes to choose from and often ended up paying over the asking price. Starting last summer, most sellers had to reduce asking prices to get offers. In 2023, that trend reversed, and only about half of the listings are seeing price reductions.

Buyers are not making offers as fast and houses are sitting longer: 100+ days. this is similar to the pre-pandemic market time. We expect this factor to decrease next month, once we get past the seasonal slowdown.

The price reduction trend is slowing down. The market has changed: in October about 60% of sellers had to reduce prices to get offers. Today, only about half of the listings see price reductions.

List prices have started to increase again – and are still significantly higher than pre-pandemic levels.

Conclusion: 2022, especially the second half – saw some significant challenges. Today we are seeing increased activity, even though winter is traditionally slow until after Mardi Gras. Based on what we see with real buyers and sellers, and changes in the data, we are expecting a healthy market in 2023. Price declines are starting to abate, and buyers are accepting higher mortgage rates, especially since they are ticking down a bit in the last month or two. We aren’t expecting the manic frenzy of 2021 and early 2022, but more of a return to normalcy.