3Q July 2023 - Housing Market Trends & Outlook
Welcome to the Housing Market Trends and Outlook Newsletter, Q3 & July 2023, First Edition!
We are now halfway though 2023, in what is likely to be one of the most consequential time periods in recent history as we navigate one potential crisis after another.
Following the most aggressive FED tightening cycle in over 40 years, with rates raised over 500 basis points from 0.25 to 5.25% currently, we have mortgage rates that are topping just over 7%, a high we have not seen since October 2022 when the real estate market was running a real risk of coming to a grinding halt.
On a more positive side, we had our most recent inflation data in recent days, on July 12, CPI (Consumer Price Index), surprising to the downside, coming in at 3% for June (down from a peak of 9.1% in June 2022), as well as this morning’s PPI (Producer Price Index), also now surprising to the downside, at 0.1% Year-over-Year; Yes, you read that right the leading indicator for inflation is now 0.1% YoY, with Core PPI now currently at 2.4%, vs the high of 9.7% back in March 2022.
This has bode well for our equity markets, which after suffering in February- March of this year due to SVB Bank failure, as well as the risk of resurgence in inflation, we have since seen the risk of both of these events cascading into something larger, diminish, giving confidence to investors and homebuyers alike.
With home prices in King County continuing their rebound since bottoming in January 2023, at $461/sqft, they’ve since risen to an average of $515/sqft in June 2023 (Peak was $565/sqft in March 2022). Median Price have followed this trend, with King County Median single Family House prices rising from a low of $800k in Jan 2023, to $940k as of June (Peak median was exactly $1,000,000 in May 2022).
After a brief surge in inventory middle-to-late last year, has continued to suffer from low inventory, with frustration on both sides, although the majority born by the buyer due to the overall lack of inventory, especially those homes that check the majority of boxes, seeing strong interest from multiple buyers, seeing escalations upwards of 10%, or more, although nothing to the level seen in the late 2020 - early 2022 market. On average, we are now seeing, King County wide, 100% sale to list price.
That said, we have continued to see Inventory levels recover and slightly build, after bottoming in February 2023, with a total of 1,525 homes available, now to 2,189 available as of June.
My outlook from here, is continued strength. There is talk of the FED to further raise rates, although personally, I do think that would be the wrong decision given the lag in the data, specifically the shelter component of CPI core which makes up over a third, which is obviously going to be downward pressure on inflation for the next 8-9 months. I think we are quickly approaching a point where the risk of deflation and possible recessionary risks exceed that of inflation.
I see somewhat of a goldilocks situation for the housing market. We have thus far weathered, what are comparatively really high interest rates, and should the economy weaken from here, the assumption is that interest rates will follow which should offset any weakening buyer demand. In other words, the greater the recession risk -> leads to lower rates.
There is greater risk for those active in the secondary and destination housing markets, due to trends reverting back to the pre-covid days, and the dynamics of the working from home, vs coming back to the offices with arguments made on both sides. There are plenty of known risks, but the greatest risk is always that which is unknown or unforeseen.
Thank you for reading - until next month!
-Anton Alexander
