The Catch 22 of 2023
Continuing the conversation… analyzing data, gathering perspective on the trends and trying to project how the market will play out between now and the end of the year. Through the end of June, the total number of sales was at an all-time low in odd contrast to the fact that prices remained surprisingly high, in large part because the number of new listings coming on the market was also at an all-time low level.
Translation: Market forces are at a stand-off. Both supply and demand are stuck in low gear, slowly grinding against each other in a self-reinforcing loop that by its very nature, resists the pressure to change.
Sellers are disappointed because they aren’t getting the same prices they were getting at the peak of the crazy market in March of 2022. And Buyers aren’t happy because the big price reductions they were expecting haven’t materialized to help offset the impact of higher interest rates. More of them are window-shopping and looking online but fewer buyers are buying.
Welcome to the Catch 22 of 2023. Prices can’t go back up to where they were in 2022 unless demand increases – by a lot. And prices can’t fall back down to the “happy place” buyers are hoping for unless the number of new listings ramps up – by a lot. If the market is going to change anytime soon, either demand or supply or both are going to have to kick into high gear. Let’s look at the main factors that affect the demand side of the equation..
Interest Rates While buyers seem to be adjusting to the sticker shock of 7% rates, the chance that they’re going to drop back down to 3% anytime soon is nil.
Jobs There’s nothing on the horizon to suggest a huge hiring boom happening anytime soon. The big tech companies are still in the throes of their post-pandemic belt-tightening.
Venture Capital/IPOs/Stocks There’s lots of posturing and scrambling behind the scenes to get into position for the next big wave of AI influenced mega-wealth but that’s still a long way off.
Remote Work It’s here to stay but for now, the balance is shifting back towards the office. Absent a new pandemic, we’re not going to see hordes of techies heading to the coast to buy houses because they suddenly don’t have to commute.
Prices A huge plunge in home prices would push more buyers into the marketplace but that would only occur if the available inventory of homes for sale hits the 6 month supply mark. That’s not in the cards for the rest of 2023.
Next Week: What about the supply side of the equation?