By Pat Riley, President/CEO, Allen Tate Companies
Across the country, market dynamics continue to shift. However, residential real estate is very local and varies by market throughout the Carolinas.
As a company, Allen Tate ended 2022 strong, with $8.5 billion in closed sales volume and 20,000 closed transactions, including 13,000 listings across our footprint in the Carolinas. These numbers reflect the company’s August acquisition of Beverly-Hanks Real Estate in the Asheville/Mountain region of North Carolina.
So where are we headed in 2023?
In late 2022, the Federal Reserve took a dramatic step to curb inflation, which resulted in an increase in the mortgage rate to more than 7%. The market is in an “interest rate lock” environment. Currently, 64% of homeowners have an interest rate below 4%, and 32% have a rate below 3%. Any decision to move means giving up a low rate that may never repeat.
And while 7% is the historic average rate since World War II, it is going to take some time to get used to it again. Rates have already receded from their highs and the expectation is that they could drop to 5-6%. That will likely become the new norm in 2023. Sellers and buyers have turned to paying to buy down interest rates at the closing
table and buyers will potentially refinance those loans at a lower rate when the rates fall further.
Supply and demand.
The lack of supply of available homes will continue to result in a seller’s market in 2023. Inventory of existing homes may increase a bit, but the lack of new construction, continued demand from in-migration of families and companies to the Carolinas, and the number of sellers aging in place will keep appreciation rates much higher than the historic norm of 3.8% per year.
In 2022, we saw an average appreciation of 13-15% in much of the Carolinas. In 2023, expect that to drop to between 8-10%, which remains historically high.
It is important to note that homes are not depreciating; they are just not appreciating as fast as they did in 2020 and 2021. Sellers must understand that they will still get a good price, but probably not the price their neighbor achieved during those two outlier years.
In 2023, homes will remain on the market longer, but still below the historic average of 90 to 120 days. And no surprise — there is always demand for well-maintained homes priced fairly.
Any recession that may occur in 2023 will be short-lived and moderate. In a recession, housing is one of the first sectors to slow — and one of the first to rebound. Any such recession will be a recession with a small “r” — a short-term drop before we level out, not a Recession with a capital “R”, like the four-year downturn the world experienced in 2007.
Market and economic issues are providing significant challenges for the first-time home buyer.
Affordability is an issue, with homes priced less than $150,000 almost non-existent. Only 25% of the homes sold in 2022 were priced under $300,000.
In the Greater Greenville MSA, median home prices increased from $253,114 in January 2020 to $356,798 in September 2022. Home prices — plus rising interest rates — are keeping first-time buyers in the rental market longer. With salaries not keeping pace with home appreciation, younger buyers are increasingly relying on family to help with down payment assistance or as co-signers.
The investor market will decrease in 2023. Institutional buyers hoping to turn a quick profit by flipping homes will see a significant decrease. However, investors looking for a return in the form of rental income will continue to buy as the cap rates remain very favorable.
In 2023, expect to see a housing market normalization. The market has been spoiled with nearly perfect conditions of low, low rates and amazing appreciation in recent years. In the Carolinas, the dream of homeownership might look a little different but remains very strong.
For 66 years, Allen Tate has been helping clients navigate the homeownership journey. In 2023, we’re here to help you make your next move all you have hoped for.
For more information, visit Allen Tate's Greenville website.
This content first appeared in GSA Business Report’s Book of Experts.