In 2021 and the first few months of 2022, the real estate market was thriving because of the low interest rates and the high competition among buyers. Now that the Federal Reserve has increased interest rates numerous times over the past year, mortgages cost considerably more than before, making it increasingly difficult for buyers to afford a home.
In Los Angeles, CA, homes remained on the market for an average of 65 days in December 2022. During the three months spanning March-May 2022, homes stayed on the market for an average of 46 days. The following takes a more comprehensive look at why homes haven't been selling as quickly.
Why are Homes Staying on the Market Longer?
There are several reasons why homes have been staying on the market longer in many areas. Keep in mind that the real estate market usually slows down in the late fall and winter, which means that it should begin to speed up again in the spring and summer. However, the latest sale trends are more than just seasonality.
High interest rates have many potential sellers opting to remain in their homes. And while home values have risen substantially over the past two years, profit may be less of a motivator for sellers who will also be buyers. This staying-put trend means less inventory on the market.
Those same high interest rates paired with high property values have contributed to many buyers being priced out of the real estate market. Less buyer demand also contributes to lower inventory, as sellers can’t rely on competition to drive purchase prices up.
When fewer homes enter the market, the existing inventory takes up a much larger percentage of total inventory, which means that the average "days on market" will increase as for-sale listings get older. Interest rates will likely remain high throughout 2023, so the current dynamic of less demand and less inventory probably won’t change that much.
What Does it Mean for Buyers and Sellers?
While the real estate market is still favorable for sellers, it's for different reasons than we saw in 2021 and the first half of 2022. At that time, inventory was low while demand was high, resulting in increased home values. While home values haven't dropped much in recent months, less demand from buyers means that sellers might not receive as many offers.
Despite the slowdown across many markets, buyer competition is still high in some areas. Affordable markets are more appealing than ever, which is why metro areas throughout the Midwest remain popular destinations for buyers. In comparison, once-hot Austin is seeing some cooling. In December 2021, houses were on the market for an average of 21 days. That number jumped to a median of 68 days in December of 2022.
If you're looking to purchase a home, the current market conditions aren't optimal. However, homes being on the market for longer means that you won't need to rush your decision. New home builders have brought back incentives and some sellers are offering money towards closing/points. If you are looking to sell your home in the near future, reach out to me and we can design a marketing plan to ensure your property gets noticed.