Compared to the last several years, 2022 brought a new set of challenges and opportunities. Demand for housing peaked during the pandemic, with too many buyers chasing too few homes, which lead to bidding wars and a highly competitive market. The Fed’s efforts to reset the housing market to bring balance and slow price appreciation have made 2022 a transitional year.
The increases in mortgage rates due to Federal Reserve rate hikes in the second half of 2022 lessened demand for housing, resulting in lower home sales and downward pressure on home prices.
Ada County ended the year with 20.8% fewer total sales than in 2021 and the lowest number of sales since 2014. Higher mortgage interest rates, combined with the swift home price appreciation in the last several years, have impacted buyers’ purchasing power and ability to afford increased monthly payments. As a result, some buyers have made budget adjustments and others have pressed pause on their home search.
The impact of mortgage rates on demand is evident when comparing the declining monthly sales as rates rose in the latter part of the year. Monthly sales were dampened during the summer and fall months — when we normally see a higher amount of activity — which affected the overall sales for the year.
Home prices continue to be driven by supply versus demand. With lessened demand, the median sales price has declined year-over-year for the last two months, with a 2.5% drop in November 2022 and a 5.5% drop in December 2022.
The Days on Market (DOM) metric —which measures the time between when a property is listed and when it has an accepted offer — has trended up in the last six months, giving inventory a chance to accumulate. In December 2022, DOM was 62 days, compared to 32 days in December 2021. This uptick in supply has also contributed to the downward trend in prices.
Mortgage rates will be a major factor impacting the housing market going into 2023. Dr. Lawrence Yun, National Association of REALTORS® chief economist and senior vice president of research, forecasts that prices will remain stable and expects the 30-year fixed mortgage rate to settle at 5.7% as the Fed slows the pace of rate hikes to control inflation.
Any declines and stabilization to mortgage rates, in addition to price declines, will help with affordability. There are current homeowners who would like to move up or downsize but are locked in with a low rate from the last several years and aren’t motivated to make a move until rates come down a bit. If rates do drop below 6%, we’ll likely see more listings come on the market, as well as an uptick in demand.
Those who are able to buy in today’s market have more options to choose from and more time to shop for a home than they’ve had in years. There were 1,462 homes available for purchase in Ada County in December, 151.2% more than in December 2021. Of those, 662 were existing/resale homes, and 800 were new construction. Buyers who haven’t looked at new homes may want to reconsider, as some builders are offering incentives and competitive pricing to move product, and many new construction homes have features and upgrades that aren’t readily available in the existing/resale segment.
While sellers need to price competitively and may need to offer incentives to attract buyers, home price appreciation isn’t expected to drop significantly. Our area experienced some of the highest price appreciation in the country over the last several years so some adjustments are to be anticipated, but the 40-50% price declines we saw in the last housing cycle are unlikely considering the strong equity position of homeowners.
Trends and statistics are useful for understanding the market as a whole, but it’s no substitute for personalized guidance from a real estate professional. Connect with a REALTOR® to learn about your options and to formulate a plan to reach your real estate goals in the coming year.
To read more about the trends in the market, please see the Boise Regional Realtors November 2022 Market Report.