What Will Happen to Home Prices in 2023?
What will happen to home prices in 2023? That is a question I get asked almost every day as a leading REALTOR® in the North Georgia Mountain Market. Before I address this question, however, a little background information is helpful.
The “Pandemic Pandemonium” (as I call it) saw home prices increase by 41% nationwide in 2020 – 2021. The Northeast GA market in particular, which includes the counties of Pickens (Jasper), Gilmer (Ellijay), Fannin (Blue Ridge), Union (Blairsville), and Towns County (Hiawassee) saw home prices increase by 47% during this same period. During these crazy two years, I saw people making some really ridiculous offers on homes up here in the North GA Mountain market. I had 48 listings in 2021 and some of them had as many as 28 offers within 3-4 days of listing them. Buyers were not only over-paying, but in many instances, they were also waiving Appraisal Contingencies and Due Diligence.
Then, in late February 2022, Russia invaded Ukraine, which caused a rapid change in the economy – largely driven by oil prices – and the Fed decided that they needed to try and cool off the housing markets with interest rate increases. So, although this did start to cause the market to cool off in 2022, there were still Closings in the pipeline well past Q1 of 2022, and in reality, the residual effects of this hot housing market resulted in a further increase in home prices, with the Northeast GA Mountain market, in particular, registering an additional 18% price increase Year Over Year (YOY) from Dec 31, 2021, to Dec 31, 2022. Yes, that does mean that the average price of all homes sold in the North GA Mountains in 2019 was $283,351 versus the average price of $509,922 for all homes sold in 2022. Here is an image of a chart that tracks the North GA Market since I got licensed as a REALTOR® back in 2015:
With rapidly increasing prices like that, it is no surprise that throughout the Pandemic Pandemonium, people asked me if I thought the house prices would crash 26% as they did back in 2007-2012 after the last real estate boom. In my opinion (as well as many leading experts) this boom was much different because the boom of 2000-2006 was prompted by the cheap credit and lenient lending standards that fueled a housing bubble. People were taking out 2nd and 3rd mortgages on their primary residences to buy 2nd and 3rd homes. When the bubble popped, the banks were left holding trillions of dollars of worthless investments in subprime mortgages. To try and prevent a repeat of this subprime mortgage fiasco, in 2010 Congress passed the Dodd-Frank Act and established regulatory measures in the financial services industry. This is why the Pandemic Pandemonium boom was viewed differently. Even though there was a boom, people were not paying for homes with 2nd and 3rd mortgages on their primary residences. They legitimately had good credit and the lending underwriting standards were much stricter. Also, because interest rates were low, they could actually afford to make the payments.
With that historical background, we now go back to the original question: What will happen to home prices in 2023? Fortune Magazine recently published an article that cited 27 “leading research firms” viewpoints on this very subject. The leading research firms included: Realtor.com, Zillow, CoreLogic, the National Association of REALTORS®, Freddie Mac, Fannie Mae, the Mortgage Bankers Association, Redfin, Morgan Stanley, ING, Wells Fargo, and 16 others. They mentioned in the article that after 124 consecutive months of positive home price growth, home prices, as measured by the Case-Shiller National Home Price Index, fell 2.4% between June and October 2022. So, what did these 27 leading research firms say would happen to home prices in 2023? Their views ranged from a 5.4% increase to a 22% decrease in home prices, with 4 of the 27 saying prices would increase and 23 of the 27 saying prices would decline. So, I guess the answer is, no one really knows! Or at least these experts have varying opinions on the subject. Also, their opinions are more national in nature anyway and take into account some of the larger metro areas. My own personal opinion is that 2023 will show a reduction in pricing in the North GA Mountain Market of somewhere between 5-15%. So not a crash, but rather a correction. Although there is still an inventory shortage, we are already seeing Sellers lowering prices and negotiating again. So we have begun to swing back to a more “normal” market, although with much higher list prices than before the Pandemic Pandemonium.
While I am sharing my opinion, the good news about the North GA Mountain Real Estate Market is that there will always be people who have had their sights set on retiring or buying a second home or vacation rental up here. Many of these folks are my age (61) and will remember that during the Carter – Reagan years mortgage rates topped out at 18.45%. My first home had a mortgage rate of 14%, so to people my age, a 6% mortgage rate is still not a bad rate, especially if you are ready to retire.
In order to read the entire article from Fortune, you need to subscribe to Fortune or have access to Apple News (which is how I read it). In case you can access it, here is a link: https://apple.news/AZNypzkc-TP-ZdmUu6cmZbQ
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