Dave,
I am sure you have heard this question a time or two lately, however, I would love to hear your answer—so hopefully you will humor me and answer this in your column. What are your real estate market predictions for 2023? I have seen countless articles of late about what is happening nationally, but I’m really curious about what you think will happen locally next year.
Cheers to the New Year!
Doug, Grand Junction
Doug,
Cheers to the New Year is right, but also cheers to last year and good riddance (especially to the back end of 2022!) 2022 started out as an out-of-control wildfire, but eventually, the fire was extinguished by inflation and high-interest rates. It is with some sadness that we close the door on what I will call the Covid years (May 2020 – June 2022.)
A quick recap. During the 2 years after Covid, we saw unprecedented market gains (price increases) and historically low inventory levels across all price ranges and property types. No segment was spared from record price increases and record low inventory. From June 2020 – June 2022 prices increased on average by over 33%. A house that sold for $275k in June 2020 sold for $410k in June 2022. In the same span of time, we saw inventory shrink to its lowest level in history. Locally there were 552 homes listed in June of 2020 and in June 2022 there were only 364. If you look back to inventory levels in the fall of 2019, we had well over 700 active listings. Fewer homes for sale and more low-interest-fueled buyers led to a supply and demand imbalance and increasing prices. Covid brought artificially low-interest rates (sub 3%), record low inventory, an unprecedented work-from-home adoption, and a desire by many to leave high populace areas which created a perfect storm! I learned long ago that living life through the windshield is far more productive than living it through the rearview mirror. That being said, I can remember lying in bed and wondering when the party would end, knowing it had to. Well, the party is over for now, but the future of the Grand Valley is very bright!
Let me say that there are no guarantees that any of this will happen, but here is my best stab at what I “think” might happen!
- Our market will continue to NORMALIZE!! By this I mean we’ll see prices continue a slight downward trend over the coming months. This trend will be either increased or decreased by the amount of inventory. The supply is still historically on the low side and if that trend continues it will temper the price correction that is in process. Should inventory start to significantly increase, we will see a more significant price correction. Keep this in mind. I am NOT saying this will happen. But, if prices dropped 15% from the all-time highs of June 2022 that would put us at the prices we saw in the summer of 2021…which at that time were at all-time highs. I am not saying prices are going down 15%, just illustrating there is room for prices to correct and it not be like 2008/2009 all over again.
- We will not see a plethora of foreclosures. I expect to see an increase, but certainly, I would not bet on it making much of an impact on the overall market. Lending standards were much more bridled over this run-up than in 2005-2008… meaning the majority of buyers were not over-leveraged and moved into their new homes in a much lower loan-to-value situation.
- Interest rates will most likely be volatile early on in 2023, but hopefully, settle in the upper 4% to lower 5% range in the back half of the year.
- We will see new construction continue to slow down. The upper-end market ($500-$800k) and “custom” homes will likely continue to be fairly active as they are less susceptible to high interest rates, however, the lower-end new home construction market will likely slow considerably, especially in the first half of 2023. This will be in large part to the impact of affordability given the higher interest rates and overall starter home buyer malaise. There will be many apartment/multi-family projects that will continue as the need for affordable housing is still very high and high density is the best way to counter high building/labor costs that show few signs of backing off…..particularly labor costs. Appears that not working is the “in” thing to do….. it’s a hard concept for me to wrap my head around, but it impacts the cost and delivery speed of everything!! This lack of laborers will continue to drag on construction.
- We will see the demand for investment properties remain strong! As the stock market and in general, the global economy becomes more and more unpredictable investors will seek a safe haven and I believe that safe haven will be real estate. Not to mention that younger investors prefer tangible asset investments rather than the stock market…although cryptocurrencies have proven to be attractive to younger investors also.
- Renting will become more and more attractive as younger “would-be” home buyers decide to play it safe and bide their time to see where prices, inflation, and interest rates are headed. Grand Junction has a large influx of new apartment complexes that provide new (and some luxury) options for renting that have not been an option in the past. With this influx, I believe rental rates will flatten out and likely become a bit more affordable in 2023.
- We will continue to see that the secret of the Western Slope is out. Covid brought areas like the Western Slope under the microscope and the masses have figured out that the lifestyle here is VERY attractive. Our area is going to get more and more popular! As big cities become more unbearable and people become exhausted with all that large metro areas entail, the lure and appeal of a slower pace of life paired with an incredible outdoor lifestyle will prove too attractive for many to pass up. Like in the movie Field of Dreams, build it and they will come…… trust me, they will keep coming!
I realize I am not stepping out on a very high ledge, but ultimately I believe our future (baring some unforeseen world event) is very bright! We are blessed to live in one of the best places I have ever been. Every time I go on vacation to somewhere “amazing”, I come home and realize that we live somewhere “amazing”. The word is out. Buckle up and enjoy the ride as I believe we will be on the ride for a very long time!
Happy New Year,
Dave Kimbrough