All eyes are on the real estate market, in an effort to guess what will happen when the snow stops falling and real estate spring market begins. The Boston Globe is no exception. Andrew Brinker published an article in mid-January, subtitled “For the first time since 2018, home prices here fell in December on a year-over-year basis.” Anything saying those fateful words, “home prices fell,” will get lots of attention.
Here are the key points about the current market:
- Median price of a single-family home in December fell on a year-over-year basis for the first time in four years. Median-priced single-family home in the region sold for $740,000 in December, down from $749,000 recorded in December 2021. This is the first December-over-December annual decline since 2018.
There is less change here than meets the eye. Median price is a better indicator than average price, true. However, when there is a trend away from expensive homes, median price gets affected. What a lowering median means is that fewer high-priced houses sold; thus, the middle of the pack (the median) was lower.
In December 2021, buyers were still in the thick of a put-an-offer-on-anything-suitable-and-hope-it-sticks kind of market. In December 2022, buyers had less competition – at least some of the time – and were making fewer sudden decisions. Generally, buyers were making fewer I-will-pay-anything mistakes.
There was a change in the number of buyers and the level of competition. It more than explains a $9000 median price drop, year over year.
This is the first drop in median price since 2018. Big deal? No. 2018 was four years ago. December is a slow month in the real estate year.
- Home prices have fallen sharply since their peak in June at $900,000.
This is a big change! Our company felt this change happening last summer and were happy for it. Our buyers were able to purchase with less pressure and frustration in the second half of the year.
The median price drop from June 2021 to June 2022 indicated a change in buyer behavior rather than a price reduction of any particular house. Fewer people were going for high-end real estate, compared to June 2021. Why did that happen?
Interest rates were fluctuating. Would-be buyers who are borrowing higher amounts are more affected by higher payments when the rates go up. Some decided not to buy now.
Higher end would-be buyers felt uncertainty; therefore, they decided to buy less, or not to buy now.
First-time buyers are still as motivated to buy as ever. If they could buy, they were still looking. First-time buyers generally buy more modest housing than buyers purchasing trade-up house.
- New listings fell by 27.6 percent in December compared to the same month in 2021.
This is not good news for our clients. It is an indication that no big price reductions are coming. If there are fewer properties on the market, there is more competition for those properties. The fewer properties on the market, the more negotiation power the sellers have.
Why are there fewer properties for sale?
People who own a house do not need to sell it at a specific time.
They are deciding this is not a good time to sell. (Reading headlines that say that prices are dropping is not going to encourage them.)
Some of these would-be sellers intended to buy a more expensive house (trading up) and have become cautious. If they have a low interest rate on their current house, they are discouraged by the current rates they’d get for their next mortgage. Some of the homeowners are renovating or adding rooms rather than moving house.
- The number of single-family home sales fell 30.2 percent from the prior December.
The result of higher interest rates and economic instability of inflation is slowing the market down, compared to the super-hot post-Covid-lockdown market from June 2020-June 2022. December is usually a slow month. It wasn’t slow in 2021; it was more normal this year.
Frankly, the total number of sales does not affect buyers and sellers. It is only the real estate agents who are directly affected.
What should a buyer do? Winter market 2023
If this is the time in your life to buy, this is a better time to buy than any since June 2020. If demand goes down, buyers’ choices and their ability to negotiate both improve.
Do not expect that prices will go down on any specific house. It is unlikely that the supply and demand balance will tilt far enough in the buyers’ favor for that to happen in a general way. The best we can hope for is a good deal on specific properties, depending on the situation. We are always looking for that.
In every market, there are moments that favor our clients, and we work to capitalize on them.
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